Establishing a business in another country can be a challenge. Ever-changing employment laws and regulations are just some of the hurdles companies will need to overcome. Incorporation services in India exist to ensure businesses can hit the ground running when they expand globally.
Setting up a legal entity in India has many advantages.Unlike hiring international contractors, for example, a legal entity will allow your business to maintain full control over its day-to-day employee operations. However, it’s important to remember that there’s a lot that goes into setting up a business entity, and each step must be followed meticulously to ensure success.This guide will provide a baseline for what businesses looking to expand to India need to know about incorporation services there.
There are a few different options when it comes to setting up a business in India:
- Limited Liability Corporation: Incorporating a company in India as an LLC is the most lengthy, difficult and costly process. This is because of the numerous regulatory requirements for the registration process.
- Branch Office: A branch office doesn’t necessarily require incorporation services in India. Foreign enterprises that expect to have less activity in India can select this option.
- Project Office: This is applicable if a foreign company is engaged by an Indian company to execute a project in India. This means the company doesn’t need approval from the Reserve Bank of India.
- Liaison Office: This type of company is the easiest and least expensive structure to set up. It has no registered capital requirements.
- Joint Venture: These can be established as partnerships or incorporated as a local subsidiary of the Indian company.
Private vs. Public Limited Liability Corporation
Private Limited Company
This is a good option for small and medium-sized businesses. Incorporation services in India are popular for this type of establishment because it has fewer reporting requirements. It’s quite common for foreign corporations to establish their subsidiary companies as a private limited company in India.
Investment Capital Requirements
A minimum paid-up capital of 1 million Indian Rupees (INR) is required, with a minimum of two subscribers. Due to its private status, rights to transfer shares are restricted. Additionally, the company can only have a maximum of 50 members.
The public is also excluded from subscribing for any shares or debentures in the company. The company cannot accept deposits from parties other than its designated members, directors or relatives.
Management Structuring Requirements
The management structure is an important consideration for the company formation. Private companies must have at least two directors, with a maximum of 15.
Even subsidiaries of a private company that have paid up capital above INR 50 million will be required to appoint a full-time managing director. Directors must obtain a Directors Identification Number (DIN) to stay compliant.
Accounting and Audit Requirements
Accounting and audits are important components of incorporation services in India. Companies must prepare financial statements, which are reported to the Registrar of Companies. The balance sheets and P&L reports must be filed within six months from the end of the fiscal year.
Compliance is critical as all companies must complete a statutory audit within six months from the end of the financial year.
Public Limited Company
Indian law describes public companies as anything that is not specifically designated as a private company. However, even if it’s a private company as a subsidiary of a public company, it is still considered to be public. All public companies are subject to Securities and Exchange Board of India (SEBI) regulations.
Investment Capital Requirements
A minimum paid-up capital of half a million Indian Rupees (INR) is required, with a minimum of seven subscribers. Unlike the private companies, public entities don’t have a limit on the number of members.
Management Structure Requirements
When incorporating a public company in India, you must have a minimum of three directors, with a maximum of 15. You’ll also need to appoint a managing director. If the remuneration proposed to be paid to the board of directors is higher than what is outlined in Schedule XIII of the Act, you must get approval from the Central Government (Department of Company Affairs).
Accounting and Audit Requirements
Public companies are subject to annual audits and limited reviews within 45 days from the end of the quarter. Public companies also have to file their financial statements within two months from the end of the fiscal year.
Secretarial audits are also required, which can be completed by a company secretary or qualified chartered accountants. The purpose of this audit is to reconcile the total issued and listed capital with depositories and total admitted capital.
Incorporation Services in India: 12 Steps to Establish a Business
1. Director Identification Number (DIN)
This step can be completed online by filling out form DIN-3. This can be submitted with a photo of the applicant, in addition to scanned copies of any supporting documentation, which include:
- Affidavit with the applicant’s name and birth date
- Proof of address (cannot be older than two months from the filing date of DIN-3)
- Proof of identity (Income Tax Permanent Account Number card and passport)
The DIN form must be signed by a practicing professional, such as a chartered accountant or company secretary. After that, the applicant can submit the form to the Ministry of Corporate Affairs (MCA) website to obtain a DIN-3 number.
2. Digital Signature Certificate (DSC)
Before company registration in India, you’ll need a DSC. These can be obtained for 1-2 year periods, and can be renewed for another 1-2 years. Authorized personnel (i.e. directors, managers, or secretary) will then need to register the same with MCA for statutory filing.
3. Check and Reserve Company Name
Name availability is an important aspect of India’s company incorporation services. The MCA has established guidelines for companies reserving a name:
- Businesses can check the availability of their desired name with the MCA21 portal. During this process, up to six names can be nominated.
- Once a name is selected, you’ll need to complete eForm 1A with all the required information.
- Upload the completed form to the portal and pay any necessary registration fees.
- The Registrar of Companies is in charge of approving the submitted name. The name cannot be similar to any existing trademark and cannot exactly match any existing company name.
- This is only a temporary reservation of 60 days from the date of approval. The company will need to be incorporated during this period. If not, the approval will lapse, which means other applicants can select your company name.
4. Memorandum and Articles of Association
The Companies’ Act 2013 and India’s FDI laws outline what companies need to do to stay compliant with the Memorandum and Articles of Association. This doesn’t apply to all companies, but should always be taken into consideration.
Ensure that the company’s Memorandum and Articles of Association are in accordance with the Companies’ Act 2013 and India’s FDI laws, where necessary.
5. File Incorporation Application
- Signed Memorandum and Articles of Association
- Proof of location Registered Office in the Form of Lease Deed
- Certified forms by a practicing professional
6. Certificate to Commerce Operations
It’s important for companies to know that operations cannot begin until a statement is filed confirming that the subscription money and minimum paid-up capital has been completed with the Registrar of Companies.
Incorporation services in India can help you fill out the eForm INC-21 to ensure the operations run smoothly.
7. Make a Company Seal
All companies in India are required to have a common seal. This ensures that only a person authorized by the company is empowered to perform tasks on its behalf.
8. Permanent Account Number (PAN)
For the purposes of taxation in India, each company must have a permanent account number (PAN). They’ll also need a tax deduction and collection account number (TAN) for depositing tax deducted at source. To complete this step, businesses will need to:
- Fill out Form 49A
- Pay an application fee
- Include proof of identity
- Include proof of address
- Two recent photos of the authorized agent for verification
9. Register with the Employees’ Provident Fund Organization
This is a requirement for any business with over 20 employees. This serves a similar function as a 401K in the U.S. and is optional for companies with fewer than 20 employees. Employers must register with the EPFO online portal in order to generate challans for making any remittances.
10. VAT Registration
A VAT number is a registered tax identification number in tax systems that use Value-Added Tax (VAT). When you register for VAT in a single country, you receive this identifier for their system.
11. Register for Medical Insurance
Incorporation services in India include setting up medical insurance for your employees. Medical insurance is a requirement for Indian companies through the Employees’ State Insurance (General) Act. This is applicable for any company with more than 20 employees.
12. Other Local Registrations
In some cases, local regions and provinces in India will have their own set of requirements for businesses. For example, Mumbai will require a tax account number from the Assessing Office in the Mumbai Income Tax Department.
Are you looking for incorporation services in India? Global Upside, a Safeguard Global company, can help businesses expand into India by offering talent acquisition, human resources, accounting, payroll, tax, incorporation, and professional employer organization (PEO)/employer of record (EOR) services.
Our comprehensive solution offers a one-stop shop for establishing businesses, maximizing operations, and complying with Indian laws and regulations.