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Complete guide on starting a company in India by Foreign Nationals

There are numerous queries and ambiguities relating to foreign nationals that we often come across from our visitors and entrepreneurs who are desirous of incorporating a company in India or just wanting to start business in India. Hence, we have decided to put forth a guide, complete guide on starting a company in India by Foreign Nationals.

Before embarking on it, the most important thing to be noted is when a foreign national incorporates a company in India, it is NOT a foreign company but definitely an Indian Company.

About Foreign Direct Investment (FDI):

The capital to be invested by the foreign national/NRI shall be classified as FDI in India. After the economic liberalization in the 1990s, the numerous bureaucratic regulations pertaining to FDI underwent dilution to a strategic extent. Today, FDI is classified into:

  1. a) Business sectors where FDI is not allowed at all.
    b) Business sectors where prior approval is required from Foreign Investment Promotion Board.
    c)
     Business sectors where no prior permission is required.

In all the above cases, once FDI is received and accepted by the recipient company, intimation is to be sent to the RBI in Form FC-GPRS within a month of allotting the shares to a foreign national.  The stepping stone is to decide or lookout for the FDI policy and the restrictions, prohibitions (if any) pertaining to it and then move ahead with the incorporation process.

The subsequent step would be to decide the type of entity to be set up in India. FDI is not allowed in India in the form of sole proprietorship or partnership with the exception of NRIs, where it is allowed on a non-repatriable basis.

The various types of entities which can be looked upon as the medium of investment are as follows:

A) Limited Liability Partnerships (LLPs): Foreign investment in LLP is regulated by a very stringent environment of regulations. Investment in LLP will be allowed only through automatic route in sectors where FDI (100%) is allowed. In these cases, no prior permission from FIPB is required.

B) Liaison Office: These offices are mainly skeletal structures set up only to act as a medium between the Foreign Institution and Indian Customers.

C) Branch OfficeThe foreign company intending to open a branch office in India should have a track record of at least five (5) years of profit-making. Except manufacturing, a branch office can execute most of the tasks delegated by  a foreign company.

D) Subsidiary Company: A limited company has no restriction imposed on it as it is treated as an “Indian Company”. However, it has to deal with various other compliances.

Few Important Points to Note here:

– Can A foreign national be a director in the proposed company: A foreign national can operate as a Director of an Indian Company without prior permission from Government or RBI. However, Companies Bill 2012 has a brought a mandate that every company must have a director who has stayed in India for at least 182 days in the previous calendar year.

– Obtaining a DIN and DSC: Obtaining a DIN and DSC for a foreign national is no different than usual. It is free from the cumbersome compliances. Director’s Identification Number (DIN) is a unique identification number allotted to the person willing to act as a director. Obtaining a DIN is the first and mandatory step of incorporation in India. The minimum number of Directorship is two for a private company (also applicable for an LLP). Further, the hierarchy of incorporation is managed electronically now. Hence, obtaining a DSC becomes a mandate as well. It is to be noted that for a incorporating an LLP, DSC is to be obtained for both the designated partners. The DSC has to be purchased from a vendor in India.

– Obtaining Name Approval for the proposed company/LLP:

a) Where one of the promoters is a Body Corporate: In this situation, company has to appoint a nominee through which it can act as a promoter. In addition to that, it has to pass a Board Resolution which the nominee needs to get apostilled.

b) Where the promoters are individuals: In this case, no board resolution is required.  After the necessary documentation, the relevant form for obtaining the name has to be filed electronically with the Ministry of Corporate Affairs, India.   The validity of the approved name is sixty (60) days for limited companies and three(3) months for LLPs at present.

– Incorporation of the unit:  After name is approved by the department, the incorporation forms have to be filed. The various documents that are required to be apostilled for this purpose are:

  • Memorandum of Association,
  • Articles of Association, and
  • Affidavits for Non-Acceptance of Deposits from promoters.

For an LLP, The required documents are:

  • Subscriber’s Sheet,
  • Letter of Consent to act as a designated partner (Form 9).

After the documents are filed along with the relevant forms (Form 1, 18, 32 for a company and Form 2 for an LLP), the department will process the forms and when it deems fit, they will issue Certificate of Incorporation. A public limited company needs to get a Certificate of Commencement before starting operations.

Incorporating a company involves a bit more of compliance hassles. However, with a professional consultancy service, it becomes a lot simpler.

– SHARE CAPITAL STRUCTURE:

Foreign entities should hold at least ten (10) % of the PAID-UP EQUITY capital of the Indian Company at all times. This would give him the power to call for Extra-ordinary General Meetings (EGMs).

If the foreign client wishes to take part in the Special Resolutions that might be required to be passed in various matters, then it is advisable for him to hold at least twenty-six (26) % of the PAID-UP EQUITY capital of the Indian Company.

WHY ComplianceIndia.co.in? – The services relating to company and LLP incorporation are provided by many practicing Company Secretaries and Chartered Accountants. What makes us unique?

  • We have a complete team of Company Secretaries and Chartered Accountants dedicated solely for the purpose of registering start-ups so that our clients can avail the expertise of both the professionals.
  • We also assist the start-ups with all the basic documentations. All our clients need to do is get them signed and apostilled which is to be done in their respective countries.
  • We have an available team of professional experts for providing guidance and assist our clients in various post incorporation compliances relating to External Commercial Borrowings (ECB), NRE and NRO Funds, etc.
  • We also specialize in tax and other compliances which are relevant post incorporation of an entity.
  • We have already assisted hundreds of startups, new businesses both Indian / Foreign Nationals in the incorporation of their businesses and also day to day tax & Regulatory. We continue to strive for the excellence in delivering quality service to our clients nationally and internationally.