What are the type of Business Entities Available in India?The following types of Business entitles are available in India:
In addition to the above legal entities, the following types of entities are available for foreign investors/foreign companies doing business in India:
What is a Private Limited Company?A Private Limited Company is a Company limited by shares in which there can be maximum 50 shareholders, no invitation can be made to the public for subscription of shares or debentures, cannot make or accept deposits from Public and there are restriction on the transfer of shares. The liability of each shareholder is limited to the extent of the unpaid amount of the shares face value and the premium thereon in respect of the shares held by him. However, the liability of a Director / Manager of such a Company can at times be unlimited. The minimum number of shareholders is 2. What is a Public Limited Company?A Public Limited Company is a Company limited by shares in which there is no restriction on the maximum number of shareholders, transfer of shares and acceptance of public deposits. The liability of each shareholder is limited to the extent of the unpaid amount of the shares face value and the premium thereon in respect of the shares held by him. However, the liability of a Director / Manager of such a Company can at times be unlimited. The minimum number of shareholders is 7. What are the advantages of a Limited Company?A limited company has following advantages:
What are the disadvantages of a Limited Company?A limited company has following disadvantages:
What entity is best suited?The choice of entity depends on circumstance of each case. Private Limited Company has lesser number of compliances requirements. Therefore, generally where there is no requirement of raising of finances through a public issue and the ownership is intended to be closely held by limited number of persons, Private Limited Company is the best choice. What is the minimum paid-up capital of a Private Limited Company?The minimum paid up capital at the time of incorporation of a private limited company has to be Indian Rupees 1,00,000 (about United States Dollars 2,250). There is no upper limit on having the authorized capital and the paid up capital. It can be increased any time, by payment of additional stamp duty and registration fee. What is the difference between authorized capital and paid up capital?The authorized capital is the capital limit authorized by the Registrar of Companies up to which the shares can be issued to the members / public, as the case may be. The paid up share capital is the paid portion of the capital subscribed by the shareholders. What is the procedure in obtaining a name approval for the proposed Company?An application in Form No. 1A needs to be filed with the Registrar of Companies (ROC) of the state in which the Registered Office of the proposed Company is to be situated. The application is required to be signed by one of the promoters. The details to be state in the said application are as follows:
On submitting the application, the ROC scrutinizes the same and sends the approval / objections in about 10 days to the applicant. On fulfilling of the objections a formal letter of name approval is issued. What is the Memorandum of Association (MOA) and the Articles of Association (AOA) of a company and what is the procedure in their regard?On receipt of the name approval letter from the ROC the MOA and the AOA are required to be drafted. The MOA states the main, ancillary / subsidiary and other objects of the proposed company. The AOA contains the rules and procedures for the routine conduct of the proposed company. It also states the authorized share capital of the proposed company and the names of its first / permanent directors. After the MOA and AOA are required to be stamped. A stamp duty is required to be paid on the MOA and on the AOA. The stamp duty depends on the authorized share capital. What are the documents required to be executed for incorporation?The following documents are required to be executed (signed) before they are submitted to the ROC:
How is the certificate of incorporation issued?After the documents in FAQ 5 are filed, the ROC calls the attorney on a specific date for scrutiny and making the corrections in the MOA and AOA filed. On complying with the same, the certificate of incorporation is granted to the attorney. When can the newly formed company start its business operations?On receipt of the certificate of incorporation, the public company has to complete certain other legal formalities such as a statutory meeting (within 6 months), statutory report, etc. On completion of the said formalities and on filing of the statutory report with the ROC the ROC issues the certification of commencement of business to the company. Thereafter, the Public Company can start the business operations. The Private Company can start its business immediately on incorporation. How do we comply with the legal formalities when we are not stationed in India?You can give Power of Attorney to a person to sign the documents on your behalf. After the Company is incorporated, you can appoint Alternate Directors, to function on your behalf while you are not in India. But at least once, you should be in India within one month of the incorporation of the Company. There can be one meeting of Board of Directors during your stay in India and all other formalities including those of appointment of Alternate Directors can be complied with. What other approvals are required for foreign investor in India?Generally, prior approval is required from the RBI before investing in India. Some categories of businesses are covered under automatic approval process. However, one has to apply for the same. There are some post-incorporation filing formalities after the remittance of capital from overseas to India and on issue of shares. What are other formalities before or after incorporation?
What are the compliance requirements for Companies in India?All the companies who are related cyber business are required to comply with the requirements of the law. In addition, all the Multinational Companies Doing Business in India and having cyber involvement are required to comply with the corporate and other laws of India including cyber law compliance. The cyber law mandates all companies to have an information technology security policy. This documents the architecture of the network, the roles and responsibility of employees, security parameters and authorization required for data access, among other things. Other compliances that are required include relate to retention and authentication of electronic records and security of data Moreover, Indian Information Technology Act of 2000 provides for further personal liabilities. For example, Section 85(1) of the IT Act provides that where a person committing a contravention of any of the provisions of this Act or of any rule, direction or order made there under is a Company, every person who, at the time the contravention was committed, was in charge of, and was responsible to, the company for the conduct of business of the company as well as the company, shall be guilty of the contravention and shall be liable to be proceeded against and punished accordingly. All the Indian companies and all foreign companies doing business in India, either directly or indirectly, should comply with this law. What are the Requirements for a Private Limited Company?A Registered Business Name: This must be followed by the word ‘Limited' or ‘Ltd'. The Companies Registration Office exercises some control over the choice of name, it cannot be identical (or very similar to) the name of an existing company. It won't be considered if it is offensive or illegal and the use of certain words in a company (for example, `Institute', `National') can only be used in certain circumstances. The company name must be displayed in a conspicuous place at every office, or other premises where the company carries out business. A Registered Office: This need not necessarily be the same address as the business is conducted from. Quite frequently the address used for the registered office is that of the firm's solicitor or accountant. This is the address, through, where all official correspondence will go. Shareholders: There must be a minimum of two shareholders (also described as `members' or `subscribers'). A private company can have up to fifty shareholders. Share Capital: The company must be formed with a stated, nominal share capital divided into shares of fixed amounts. Small companies are frequently formed with a nominal share capital of Rs.100 Memorandum of Association: The memorandum is the company's charter. It states the company's name; the situation of its registered office; its share capital; the fact that liability is limited and, most importantly, the object for which the company has been formed. In theory, the company can only operate in the areas mentioned in the objects clause but in practice the clause is drawn to cover as wide an area as possible, and anyway a 75 per cent majority of the members of the company can change the objects whenever they like. Nevertheless, it is worth bearing in mind that directors of the company will incur personal liability if the company engages in a type of business which is not authorised by the objects clause. The memorandum must be signed by at least three shareholders. Articles of Association: The document contains the internal regulations of the company, the relationship of the company to its shareholders and the relationship between the individual shareholders. Many companies don't bother to draw up their own articles but adopt (sometimes with some modifications) articles set out in the Companies Act. Certificate of Incorporation: This is the document, which the registrar of companies issues to you once he has approved your choice of name and your memorandum. When you receive this document your company legally exists and is ready to trade. Auditors: Every company must appoint a qualified auditor. The auditor's duty is to report to the treasurer whether or not the books of the company have been properly kept, and that the balance sheet and profit and loss account presents (or doesn't present) a true and fair view of the company's affairs and complies with the Companies Act. Auditors are appointed or re-appointed at general meetings at which annual accounts are presented, and they hold office from the conclusion of the meeting until the next general meeting. Accounts: The Companies Act lays down strict rules on accounting. Every company must maintain a set of records, which show the financial position at any one time with reasonable accuracy. The accounts comprise a profit and loss account and balance sheet with the auditors' and directors' reports appended. A new company's accounting reference period begins on its incorporation and runs until the following 31st March - unless the company notifies the registrar of companies otherwise. Within ten months of the end of an accounting reference period, an audited set of accounts must be laid before the shareholders at a general meeting and a set delivered to the registrar of companies. Registers, etc.: In addition to the accounts books, companies are required to have: a register of members and share ledger; a register of directors and secretaries; a register of share transfers; a register of charges; a register of debenture holders; a book can be purchased to hold all of the above. This will be provided automatically if you buy a running concern. Company Seal: All companies must have an engraved seal. This must be impressed on share certificates and must be used whenever the company has to execute a deed. Again, this is included in the ready-made company package |