Corporate Laws And Advisory
Doing Business in India
- Admin
- 2024-07-11
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For substantial reasons, the growth of the corporate sector in India is becoming evident through the continuous expansion of the corporate base. India is positioned as the world's fifth-largest economy and is predicted to become third by 2030. This creates enormous opportunities for doing business in India, for its citizens, and for those who engage constructively with it. Indian corporate sector offers immense opportunities for foreign investors with its dynamic market and prevailing opportunities like access to skilled talent, technological advancements, low operational costs, economic growth potential, a thriving entrepreneurial landscape, and a proactive government offering various incentives to invite foreign investments. Additionally, India's economy ranks among the fastest-growing globally, with GDP growth averaging about 7% annually in recent years. This article covers keynotes for foreigners aiming to establish a successful business presence in India.
An Overview of MCA and Applicable Laws
The Ministry of Corporate Affairs (MCA) is pivotal in administering key legislation such as the Companies Act 2013, The Limited Liability Partnership Act 2008, and other related statutes. These laws are integral to regulating and overseeing the corporate sector in compliance with legal frameworks in India.
- Companies Act, 2013: This is the primary legislation governing the incorporation, management, and operations of companies in India.
- Limited Liability Partnership (LLP) Act, 2008: This act governs the formation, operation, and dissolution of limited liability partnerships in India.
- Goods and Services Tax (GST) Act, 2017: This act deals with the levy and collection of GST, a unified indirect tax applicable throughout India.
- The Insolvency and Bankruptcy Code (IBC), 2016: The Act provides a consolidated framework for the insolvency resolution of corporate persons, partnerships, and individuals in India.
- Foreign Exchange Management Act 1999: The Act regulates and controls foreign exchange transactions in India, ensuring compliance with foreign exchange regulations and managing external trade and payments effectively.
- Income Tax Act, 1961: This act taxes income earned by corporations and individuals in India, including provisions related to foreign companies operating in India.
Classification of permissible business entities In India
|
Particulars |
Private Limited Company |
Public Limited Company |
Limited Liability Partnership |
|
Meaning |
A Private Limited Company in India is a separate legal entity where shareholders privately hold ownership. Shareholders have limited liability, meaning their personal assets are protected from the company's debts. |
A Public Limited Company in India can raise capital from the public through selling shares on the stock exchange. |
An LLP in India combines the features of a partnership and a corporation. It offers limited liability protection to partners, meaning their personal assets are safeguarded from the LLP's obligations. LLPs are managed by partners and do not issue shares. |
|
Number of directors/partners |
It requires at least two directors and shareholders. Maximum number of members is limited to 200. |
It needs at least three directors and seven shareholders. There is no restriction on the maximum number of members. |
There should be a minimum of two designated partners who must be natural persons, at least one of them must be of Indian nationality. |
|
Annual audit of financial statements |
Statutory audit is mandatory irrespective of profit or turnover. |
Statutory audit is mandatory. |
Statutory audit is mandatory. |
|
Appointment of KMPs |
it is mandatory for every Private Limited Company having a paid-up share capital of INR 10 crore or more to appoint a full-time Company Secretary. |
A public company having a paid-up share capital of Rs.10 crore or more |
NA |
|
Minimum authorized and paid-up capital requirement |
Must have an authorized share capital of Rs. 1 Lakh. Due to an amendment, it need not have any minimum paid-up share capital. |
The minimum paid-up capital requirement is Rs. 5 Lakh and authorized capital of Rs. 1 Lakh. |
NA |
|
Annual compulsory compliance |
filing of financials with the ROC Filing ITR filing a few other forms annually for the Director's KYC, |
filing of financials with the ROC Filing ITR filing a few other forms annually for the Director's KYC |
filing of financials with the ROC Filing ITR filing a few other forms annually for the Partner’s KYC |
|
Applicable Legislation |
Companies Act, 2013 |
Companies Act, 2013 |
Limited Liability Partnership Act, 2008 |
|
Financial Year |
1st April to 31st March |
1st April to 31st March |
1st April to 31st March. |
|
Conversion |
Can be converted to LLP or Public Limited Company |
Can be converted to private limited or LLP |
Can be converted to a private limited or public limited company |
|
Transferability of shares / Capital |
Restricted |
Freely Transferable |
Capital contribution can be transferred |
Other Business Structures Foreigners Can Form in India
|
Branch Office |
Liaison Office |
Project Office |
|
|
Meaning |
A Branch Office is an extension of a foreign company in India that conducts business activities such as trading, professional services, and representing the parent company. |
A Liaison Office acts as a communication channel between the foreign parent company and Indian entities, focusing on promoting business interests without engaging in commercial activities. |
A Project Office is set up by a foreign company in India to execute specific projects, typically for contracts awarded to the parent company, and is limited to activities related to the project. |
|
Registrations |
Approval from the Reserve Bank of India (RBI) and registration with the RoC. |
Approval from the RBI and registration with the RoC. |
Approval from the RBI and registration with the RoC. |
|
Compliances |
Compliance with Indian tax laws, annual filings with the RoC, and adherence to the Foreign Exchange Management Act (FEMA). |
Cannot undertake commercial activities, limited to liaison activities—compliance with FEMA and annual filing of activity reports. |
Compliance with FEMA, annual filings, and tax regulations. Must adhere to project-specific guidelines. |
|
Permits |
Specific business licenses and permits based on industry. |
Generally, no permits are required as they cannot engage in trade. |
Project-specific permits and licenses as required |
Note:
- Non-resident Indians (NRIs) or foreign nationals can establish a company and invest in India, adhering to the Foreign Direct Investment (FDI) Policy and the guidelines set by the Reserve Bank of India (RBI). According to incorporation rules, the sole requirement is appointing at least one person of Indian nationality to the company's Board of Directors.
- Certain sectors may have specific compliance requirements or restrictions on foreign ownership, necessitating approvals from regulatory authorities. All entities must comply with the Companies Act, 2013 provisions regarding corporate governance, board meetings, resolutions, etc.
Summary
India's ranking for Ease of Doing Business has improved considerably, making it an attractive destination for companies interested in doing business in India, highlighting regulatory reforms and a conducive business environment. One notable development is the Gujarat International Finance Tec-City (GIFT City), India's first operational smart city and international financial services center. It offers a business-friendly environment with tax incentives, state-of-the-art infrastructure, and regulatory relaxations, making it an attractive destination for foreign businesses looking to establish a presence in India. As we discussed available options, LLPs are often favored by foreigners due to their simplicity and flexibility compared to Private and Public Limited Companies as they have streamlined compliance requirements, fewer regulatory hurdles, and ease of formation while significant taxation reforms have enhanced the ease of doing business in India. (On July 01, 2017, the Goods and Services Tax (GST) was introduced, consolidating previously complex and costly taxes for businesses into a simplified tax structure.). Additionally, with a distinct focus on transparency and accountability, the government has introduced several initiatives to foster entrepreneurship. These initiatives concentrate on simplifying procedures for applications, renewals, inspections, and record-keeping; rationalizing the legal framework by repealing, amending, or subsuming redundant laws; and promoting digitization by creating online interfaces to replace manual forms and records.
How can we be of help?
At Hedgesquare, we support businesses, including foreign entities, by offering comprehensive assistance with regulatory compliance, facilitating company incorporation, and providing expert guidance on corporate governance. Our team excels in streamlining and simplifying processes related to company formation, filings, and statutory records, equipped with extensive expertise in Indian corporate law. This allows us to aid in simplifying the process of doing business in India for every entrepreneur.