What does Incorporate a Company Mean – Essential Information for US Businesses Planning to Incorporate in India | India Business Incorporation Consultancy for US Firms

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Introduction for Businesses & Entrepreneurs of California, Texas & New York:
Incorporation is a process that results in the formation of a company or an entity. For any US Entrepreneur or businessman wishing to start a business in India, it is important to understand the procedure for incorporating a business in India. When a company/entity is incorporated, it attains a legal status. It is treated as an artificial person in the eyes of the law, and it can sue and be sued in a court of law. When a company is incorporated, it receives different benefits, such as distinct legal identity, artificial person, perpetual succession, limited liability, and being treated separately from its owners/management.

Importance of Setting-up Company in India especially for American Companies:
Incorporation gives a company its legal status. It is the first and most important aspect of starting a business. For US entrepreneurs who wish to expand their business in India, Incorporation is the key as it safeguards their company, money, time, etc. A company receives various benefits upon incorporation, such as tax benefits, limited liability, the ability to raise funds from the public, and the ability to bring in/acquire funds and investment from other countries via foreign direct investment (FDI). When the company is incorporated, a corporate veil is formed, which separates the company from its owners; therefore, your personal assets/property cannot be attached to the company, and your liability is fixed and limited.

Different Corporate Structures in India for Foreign Businesses:There are two main categories available: Company and Limited Liability Partnership (LLP). A company can further be divided into three types: Private Limited Company, Public Limited Company, and One-Person Company (OPC). Each of these structures has its own features, pros, and cons. It is important for every US business that wishes to expand or start their business in India to consider all the factors before picking one business structure. A one-person company is an entity that has one director and a single person who has full control of the business. It is an exception to the rule that there shall be a minimum of 2 members in a private company. A private limited company is a form of company that has limited members and is restricted from acquiring investments from the common public, i.e., it cannot invite the common public to subscribe to the shares of its company. On the other hand, a public limited company has no restrictions on inviting the common public to subscribe to their shares, and there is no limitation with regard to number of members. Finally, a Limited Liability Partnership (LLP) is a mix or combination of a partnership form of business and a company. In simple words, it is a partnership with limited liability, and some of the features are the same as a company. An LLP has fewer compliances than a company.

US and Indian Corporate Laws: Insight for American Companies who wish to Operate in India
The key differences between US corporate laws and Indian corporate laws are the legislation, regulatory authorities, statutory compliances, etc. In India, companies are governed by the Companies Act 2013. Understanding the Companies Act and all the rules framed thereunder is important for successfully starting and running a business in India.
There are a few similarities as well, such as the concept of a Limited Liability Company (LLC), which is quite common in the US and is similar to that of a Private Limited Company in India. The small differences that exist are with regard to minimum members. An LLC in the US can be started with just one person, whereas a private limited company requires a minimum of two members.

Why incorporate a company in India:
India is a developing country with an abundance of manpower and skilled labor. It has excellent infrastructure and developed Information Technology, which is important for a company. The Indian Legislation is very simple and easy to follow for any growing company or startup. The Ministry of Corporate Affairs, Government of India, has been promoting the idea for the formation/incorporation of more and more startups. For any US business, India is an ideal destination to expand their business not only in Asia but globally. Regulations such as Foreign Direct Investment (FDI), Overseas Direct Investment (ODI), and the formation of GIFT SEZ (Gujarat International Finance Tech-city) are all supportive for foreign individuals/businesses to expand or start their business in India.

Incorporation procedure and Important documents:
The Companies Act 2013 sets out the procedure for the incorporation of a company. The procedure involves statutory filings and making different applications. Online and Offline applications can be made for the registration and incorporation of a company. Firstly, You need to reserve a name for your company, the name shall be approved by the Registrar of Companies (ROC). The company shall have a minimum of 2 directors (in the case of a private company) and 3 directors (in the case of a public company). For a US entrepreneur starting his business in India, it is important to note that at least one of the directors of the company shall be an Indian Resident. A director shall have a Director Identification Number (DIN) and a Digital Signature Certificate (DSC). Also, each of the directors shall prove their eligibility to become a director of the company by submitting an affidavit stating that they are not ineligible as per the Companies Act 2013.
The most important documents for incorporation of a company are Memorandum of Association (MOA), Articles of Association (AOA), Proof of place of business (Utility bills), etc. The Registrar of Companies may request additional documents in case of a foreign individual wishing to open a company in India.
All documents must be submitted to the Registrar of Companies along with the applicable fee as mentioned by the Act or the Registrar.

Various Compliances and Regulatory Authorities:
Different regulatory authorities oversee a company’s functioning, and all companies must comply with their rules. Some of the important regulatory authorities are the Ministry of Corporate Affairs (MCA), the Registrar of Companies (ROC), the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI), and the Income Tax Authorities.
The Companies Act 2013 is the governing law for all companies and sets out the various compliances that the company must perform from time to time. Some of the most important compliances include filing annual returns, audit reports, and financial statements.

Importance of a Legal Advisor:
Hiring a legal advisor who is well versed in all the local laws, compliances, etc., is very important for a US businessman to open a business in India. A Legal advisor can guide you from the very beginning by helping you choose the best structure for your business based on the nature of your business and other factors. The Legal advisor will take care of all the necessary filings, compliances, etc. Without the help of an expert, it will be an uphill task for anyone to start their business in a new country. You can hire an individual or a firm to help you with their legal expertise in setting up a business and ensuring its smooth functioning. Most importantly, a legal advisor will ensure the company is at all times in compliance with the legislation governing the company (all the applicable laws).

Conclusion:
With proper planning and execution, US entrepreneurs and businessmen can expand their businesses in India. Once you set up your business in India and make sure that it functions smoothly and that all the statutory requirements and filings are done from time to time, you can achieve long-term success and grow your business with time. You can set up different branches in India and explore new areas of business. A successful business in India can help you expand your business globally.

FAQs for US based Businesses & Entrepreneurs for Registering their Company in India:
1. What are the different types of Business structures?
Ans: The different types of business structures include a Private Limited Company, a Public Limited Company, a One-Person Company (OPC), and a Limited Liability Partnership (LLP).

2. What factors are to be considered while choosing a business structure?
Ans: Many factors must be considered before finalizing a business structure. They are Liability, Nature of Business, Short-term goals, Long-term goals, Capital invested, Raising Funds, Acquiring Investment (from both local and foreign sources), Tax burdens, Compliance, etc.

3. Can US individuals become shareholders in an Indian Company?
Ans: Subject to the guidelines issued with respect to Foreign Direct Investment (FDI), a US citizen can acquire shares of an Indian Company.

4. Can a US company become a shareholder in an Indian Company?
Ans: A US company can invest in an Indian Company via a foreign portfolio investment (FPI) and thus acquire shares of an Indian Company.

5. Can the profits from my Indian Business be transferred to me in the US?
Ans: Yes, after complying with all the rules and regulations set out by the Companies Act 2013 and the Reserve Bank of India (RBI) and paying the taxes, you can transfer the profits of your Indian Business to the US.

6. Is Goods and Services (GST) registration mandatory?
Ans: Yes, GST registration becomes mandatory once you cross the threshold limits as mentioned by the Central Good and Services Tax (GST) Act 2017.

7. What are the audit requirements for a company in India?
Ans: Audits are mandatory and are to be done every year. Audits should be done by certified auditors, more commonly known as Chartered Accountants (CA)
Authored by: Adv. Anant Sharma & Inayat Ahmed

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