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“Foreign Direct Investments in India or FDI in India has seen an immense inflow of funds. Setting up of Corporation in India or India business entry is a complex process and has standardized routes which is/are to be followed by the foreign investor. The requirement of an Indian resident Director is a mandatory requirement to incorporate a Company in India. There are several tax exemptions for export units. Special Economic Zones and Exclusive Economic Zones are also set up. All these requires an expert guidance of a seasoned FDI Attorney in India who can render best in class corporate law advisory and corporate legal solutions respectively.”
India has become a hub for foreign nationals to set up their business. It is attracting a large amount of Foreign Direct investment every year and opportunities & large market in India are encouraging foreign nationals to set up their business in India. In this Article, the procedure to set up business in India is detailed.
Entry Strategies into India: Best FDI Attorney Legal Advice in India
There are mainly two ways by which a foreign national can set up business in India- by Setting up of Liaison Office in India or by Incorporation of Private Limited Company in India.
The first thing to look into before setting up business in India is the entry route for Foreign Direct Investment in the sector in which foreign nationals are interested to set up their business. Private Limited Company or Limited Company is permitted up to 100% in most of the sectors. Prior approval from the Government of India is required only in a few sectors. So, it would be easy for the foreign nationals to set up a private limited company in India.
For Setting Up of Liaison Office mandatorily requires permission from Reserve Bank of India and therefore, the cost and time taken for registration of liaison office for a foreign company is more than that of the money and time spend for incorporation of a private limited company. Further, Liaison offices cannot be opened by the Foreign Nationals and this choice is limited only for foreign companies wanting to set up their business in India by the entry strategy of setting up of Liaison Office.
Procedure for the Incorporation of Private Limited Company: Best Corporate Lawyer Advice in India
Companies Act, 2013 under the Ministry of Corporate Affairs (MCA) and Companies Incorporation Rules, 2014 governs the Incorporation of Private Limited Company.
Obtaining Name Approval from the Registrar of Companies (RoC)- The first step for incorporation of a private limited company is to think of the name of the company they want to set-up and then get that name approved. Foreign nationals can apply two names at the same time (provided that the name of the entity must not be the one which is already registered with Ministry of Corporate Affairs (MCA) or having a similar registered trademark) through incorporation form i.e Simplified Proforma for Incorporating a Company Electronically (SPICe). The fee for filing the name is INR 1,000.00 only and in case the applied name is rejected then only one resubmission is permitted with the filing fee of INR 1,000.00 only.
Appointment of Shareholders and Directors- To register a Private Limited Company, it is required to have a minimum of two shareholders and two directors. Shareholders can be an entity or a person but the director has to be a person only and foreign nationals can be directors in Indian Private limited companies. However, the Board of Directors must have one director who is Indian citizen and India resident both and hence, Two Foreign National directors and one Indian National director is the combination preferred by most of the foreign nationals or foreign entities. As a minimum of two shareholders are required for the private limited companies incorporated in India, only one corporate entity or one person is not permitted to hold all the shares.
The next step is to obtain DIN for proposed directors. DIN refers to Director Identification Number. It is an eight-digit number. The directions for obtaining DIN are given in Section 153 of the Companies Act, 2013, it says that proposed directors will have to file an application in e-Form DIR 3 with prescribed fees. Documents Required for DIN are:-
a. Passport Size Photograph
b. Self-Attested Address Proof Copy and;
c. PAN card copy of the applicant.
The application for designation of DINs to the projected first directors in regards to new organisations will have to be made in SPICe Form.
Obtaining Digital Signatures- The next step is to obtain digital signature for Foreign National Directors. It is required because all filing of the company is in electronic mode and therefore the form is needed to be signed in digital mode only. Class-2 digital signature is required for signing the e-forms of company incorporation. Documents required for obtaining Digital signature are:-
a. In case where the Foreign national is residing in his/her native country and that country is a signatory of Hague Convention- For attestation, Identity proof, Address proof and photo on application of Digital Signature Certificate should be notarized by the Public Notary of that native country of applicant and apostilled by the competent authority of same country
b. In case where the Foreign national is residing in his/her native country and that said country is not a signatory of Hague Convention- For attestation, Identity proof, address proof and photo on application of Digital Signature Certificate should be notarized by the Public Notary of that foreign country and consularized by the competent authority of that foreign country. Documents that are required: Passport, Application form with Photo and tis all need o be attested.
c. In case where the Foreign national is residing in India, these documents have to be certified by one’s embassy-Certificate of Resident permit issued by Assistant Foreigner Regional Registration Officer, an officer of Bureau of Immigration India, Visa, Passport, Application form with attested Photo.
d. In case where the Foreign national is neither in India nor in the native country, the documents that should be certified by the local embassy of that country where the person belong to- Passport, Visa, Application form with Photo(attested)
Preparing Memorandum of Association (MOA) & Articles of Association (AOA)- Memorandum of Association (MoA) refers to the deed of the company. It is an officially authorised document prepared to define its relationship with shareholders and it specifies the purpose for which the company has been formed whereas an Article of Association (AoA) defines the rules and regulations of the company’s internal management. It enumerates the rights, liabilities and powers of the management of the company.
Subscribing to the MOA & AOA by the shareholders (either foreign companies or foreign nationals or Indian companies or Indian nationals) depicts their motive for becoming a shareholder in the company to be incorporated. In case a Foreign Company is a subscriber to the MOA & AOA of the proposed Indian Company, the documents that has to be submitted regarding that foreign company are-
a. Board resolution of the Foreign Entity authorising investment in shares of the Indian Company.
b. Copy of the certificate of incorporation of the foreign entity.
c. Copy of address proof for the foreign company.
Application for Incorporation of Company- After the first step of name filing is completed and name is reserved for the proposed company then one shall proceed for making an application of Incorporation and that can be made through filing of web-based form i.e., SPICe+ Part B form and it should be filed alongside with SPICe_MOA, SPICe_AOA, AGILE- PRO and INC-9, where the other information is need to be filled in all the details of directors, details of subscriber and other details of the company that are required.
The application is submitted by paying the prescribed Stamp Duty. This stamp duty can differ from state to state as the stamp duty is subject to state.
File SPICe Form- INC 32- This Form deals with the single application for reservation of name of to be incorporated company, incorporation of a new company and application for allotment of Director Identification Number (DIN) and application for Tax Deduction Account Number (TAN) and Permanent Account Number (PAN). Furthermore, this e-Form should be filed alongside with specified documents including details of Directors & subscribers, Memorandum of Association and Article of Association, etc.
When this e-Form is processed and found acceptable, the company would be registered. Proposed directors who do not have valid DIN, he/she would also get the valid DIN issued and this integrated form can be used by all the three directors for the purpose of filing applications for the allotment of DIN while incorporating a company.
SPICe Form is to be filed with the Registrar of Companies along with following required documents:
- Form DIR-2 – statement from first directors
- Statement by Directors- regarding credits
- DIN affirmation by proposed directors
- INC-9 affirmation by first subscribers and directors
- Directors’ interest
- Memorandum of Association (can be recorded as eMoA in Form INC 33)
- Articles of Association (can be recorded as eAoA in Form INC 34)
- Statement by the director if any agreement of sector regulator is required
- Registered office address proof
- Proof of address and identity of all the subscribers
Finally, if the above-mentioned documents are submitted along with the application for incorporation of a company, and the registrar found them acceptable, a Certificate of Incorporation would be issued by the registrar for the Indian Private Limited Company.
Once the company is incorporated in India, the director has to open a bank account for the company and once this process is also completed, the company must make FDI reporting to the Reserve Bank of India. It will help in ensuring that business set up by the foreign national is in compliance with all the rules and regulations in India and ready to be operated. The procedure for FDI reporting is simple and can be completed by taking help of legal professionals in India.
Setting-up Business in India is easy and with the help of legal professionals a private limited company can be easily incorporated in India and the foreign national after setting up their company in India can easily operate their business in India.
Authored By: Adv. Anant Sharma & Anjali Swami