Saturday, October 29, 2011

FORMATION OF COMPANY IN INDIA


       Formation of company in India is governed by the Companies  Act, 1956. For incorporating a private limited company a minimum of two directors and a minimum of two shareholders are required. The number of shareholders is limited to 50. An invitation to the public to subscribe to any shares or debentures is prohibited.  No invitation or acceptance of deposits from persons other than members, directors or their relatives is allowed.  Before starting the process of registering a company the prospective directors must have Director Identification Number (DIN) and Digital Signature Certificate (DSC).  DIN and DSC can be obtained by submitting online application.  After acquiring the DIN and DSC, the next step is to get the name of the Company approved by the Registrar of Companies (ROC).  An online application should be submitted to the Registrar of Companies giving a maximum of six names and the ROC will reply within seven days as to the availability of the names.  Once the name is approved, the next step is drafting the Memorandum of Association (MOA) and the Articles of Association (AOA) of the proposed company. After the MOA and AOA are prepared they are printed and sent to the ROC for vetting and to mark out objections, if any. The documents are then stamped and finally all the documents along with some other details like particulars of appointment of Managing Director, Directors, Manager and Secretary are sent to the concerned Registrar. The last step is to pay the registration fee, which varies on the basis of the company’s authorized capital, after which the company gets registered as a private limited company under the Companies Act, 1956 and gets its certificate of incorporation. There are some more things that are required by a private limited company, like getting a Permanent Account Number and a Company Seal, after it is registered. However, unlike a public limited company, a private company can begin its operation right after getting a certificate of incorporation and complete the rest of the formalities simultaneously.
       A foreign company can commence operations in India by incorporating a company under the Companies Act, 1956 through Joint Ventures (JV)  or Wholly Owned Subsidiaries (WOS).  Foreign Companies can set up their operations in India by incorporating a JV Company with an Indian Partner and / or with the general public and operating either as a listed company or as an unlisted company. Foreign companies can also set up wholly owned subsidiary in Sectors where 100% Foreign Direct Investment (FDI) is permitted under the FDI policy of the Government of India.  Once the company is incorporated in India, foreign investor has to either intimate Reserve Bank of India (RBI) of the foreign equity or take approval of Foreign Investment Promotion Board (FIPB). Intimation to RBI or approval from FIPB is dependent upon the sector in which foreign investor intends to do business.  Once a company has been duly registered  and incorporated as an Indian Company it is subject to Indian laws and regulations as applicable to other  domestic Indian companies. All foreign investments are freely repatriable (net of applicable taxes) except in cases where (i) the foreign investment is in a sector like Construction and Development Projects and Defence wherein the foreign investment is subject to a lock-in-period and (ii) Non Resident Indians (NRI) choose to invest specifically under non repatriable schemes.  Further, dividends (net of applicable taxes) declared by foreign investments can be remitted freely through an Authorized Dealer Bank.
 - P.Rajendran