How to open a company in India for a foreigner

Registration of a company in the country opens up opportunities to enter the world's largest Asian market. It is second only to China in size, and India's PPP GDP is in third place in the world. The advantages of opening a company in the country include factors such as access to cheap resources and labor, availability of zones with preferential taxation, highly qualified personnel, etc.

Company Forms in India

The registration and operation of companies in India is governed by the Companies Act. from 1956. This law applies throughout the country. This normative act provides for the conduct of activities in the following forms:

Sole proprietorship

Similar to a private entrepreneur, the simplest form of business in India.

Key benefits:

• lack of state registration;
• minimum requirements;
• Tax is paid on the proceeds received.

Attributes of a sole proprietorship company:

• Map of Aadhaar;
• PAN map;
• bank account;
• Documents confirming the presence of an office (lease agreement, utility bills).

One-person company — OPC

This form of company appeared in India only in 2013. Previously, at least 2 persons were required to register a company in India.

This type of company allows for sole ownership.

The main advantages of this form of doing business are:

• less requirements than for private limited companies;
• the company is liable for liabilities only with its assets, not the owner;
• access to bank loans;
• easy to manage.

Attributes of a one-person company in India:

• digital signature certificate;
• director identification number;
• memorandum of association;
• charter;
• documents confirming the presence of an office;
• certificate of registration.

Partnership company

It provides for the existence of a partnership agreement between all the founders of the company, which indicates: the name and address of all partners, the date of commencement of the company, the share in the capital of each partner, all rights and obligations of the parties, the procedure for distributing profits.

This form of company has a number of advantages:

• ease of registration;
• distribution of risks between partners;
• no need to submit annual reports and audit;
• flexibility

Limited Liability Company (LLC)

This type of company makes it possible to divide the obligations between the founders depending on their contributions.

The main advantages of a limited liability company are:

• easy to register and do business;
• the company, not the founders, is responsible for the obligations;
• flexibility in the distribution of profits;
• opportunity to optimize taxation.

Attributes of an LLC in India:

• identification number;
• digital signature certificate;
• company name approval;
• charter;
• confirmation of a legal office;
• extract from the register of registration.

Private Limited Liability Company (PLC)

This form of company provides for a minimum of 2 founders, but no more than 200.

PLC features in India:

• responsibility for the obligations of the company is limited only to the share of the founder in its capital;
• Company shares are easy to transfer to another person;
• a company may issue debt securities;
• there is access to preferential tax regimes.

Attributes of a limited liability company in India:

• digital signature certificate;
• director identification number;
• charter;
• documents confirming the presence of an office;
• certificate of registration.

Private company — features:

• Share transfer prohibited;
• Allowed number of founders — from 2 to 50 people;
• The issuance of debt securities or securities through the involvement of individuals is prohibited;
• Tax rates are set at the highest rates;
• The founders are free to make decisions regarding the operation of the company;

Open private company type requires the following conditions:

• at least a quarter of the paid-in capital is held by a public company (or several companies);
• the company accepts deposits from individuals;
• average annual turnover — over $2.5 million

Characteristics of a public company in India

• Free transfer of shares allowed;
• The minimum number of founders — 7 people;
• No restrictions on attracting private investment;
• Taxes are assigned at lower rates.

There are other forms of doing business in India, but they are not subject to the Companies Act, such as partnership firms and the Hindu Undivided Family.

Each form of doing business provides for a unique package of documents and certain obligations. So, for example, Sole proprietorship must submit only income declarations, while companies have more obligations: preparation and submission of income declarations, annual reports, bookkeeping with a mandatory annual audit.

Representative offices and subsidiaries in India

A foreign company has the ability to create a new company in India, own all its shares and fully control its activities;

In accordance with the articles of the company's Charter and the provisions of local legislation, the rules for taxation and audit of the company's activities are determined;

Registration Office of India also issues permits for opening a branch or branch of a foreign company for doing business;

All financial receipts from the central office to the account of the representative office in the Indian bank are automatically converted into Indian rupees. Any expenses are made only in rupees.

Any foreign company in India must:

• indicate the name of the country where the company is registered in any prospectus inviting the purchase of shares;
• indicate the name of the company and the country in business correspondence.

Buying and selling companies in India

Merge and Split

Mergers and acquisitions in India are governed by the Indian Companies Act 1956 (sections 391–394). Although mergers and acquisitions can be initiated by mutual agreements between the parties, the procedure is still largely determined by the court and is therefore lengthy and quite problematic.

Having a corporate law judgment is highly desirable at the start of the process, plus the merger or division of the company must be approved by ¾ shareholders who are present at the relevant meetings.

Indian law sets a maximum period of 210 days for claims from creditors or others from the date of the decision to merge / split.

The laws of India permit the incorporation of an Indian company with its international partners, provided that the international company is located in India.

Assets and Liabilities Transfer

The transfer of assets and liabilities can be carried out either partially (transfer of key assets) or in full (transfer of business). But the latter option is much better due to the more favorable tax treatment compared to the transfer of assets.

Selling or buying shares

The purchase of a legal entity can be carried out in the following ways:

• direct buyback of securities to shareholders;
• issuance of new securities.

Foreign direct investment in India is only allowed in equity and equity-related instruments.

Create a joint legal entity

Performed by agreement between the parties.

The process of buying/selling a company in India

Purchase and sale of companies in India is carried out on the basis of negotiations between the parties. The procedure itself can take place through an auction, bidding, or simply on the basis of an agreement.

The purchase procedure involves the preparation of conditions and the development of the structure of the transaction. After that, the potential buyer conducts Due Diligence of the legal entity. If the results of the verification satisfy him, an agreement is concluded (depending on the structure of the transaction): an agreement on the transfer of assets / business, an agreement on the purchase of shares or on their subscription, an agreement on the creation of a joint venture, etc.

Further, depending on the terms of the transaction:

• payment can be made immediately after signing the agreement; 
• agreements are executed in the same time frame, and the transaction — to others.

The process of buying/selling a company in India depends on many factors. Given the current legislation, the fastest option is to acquire shares, followed by the transfer of assets and business. The longest option  — it's a merger and acquisition.

Incorporating a company in India

Registration of companies in India is handled by the Ministry of Corporate Affairs. The registration process takes place in 4 stages: issuing a digital signature, issuing a director's identification number, registering on the MCA portal, and issuing a certificate of registration. It is also necessary to register a prospectus with information about the company for potential investors. Registration of a company in India ends with the issuance of a certificate of incorporation authorizing the company's economic activities.