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‘Ease of Doing Business’ may be on most priority list of the Indian Government, the administration bodies, however keep inventing new tools to challenge the process.  Mandatory Annual KYC of all Directors of all companies may be considered as one of such tool, which needs to be complied with on or before August 31, 2018. Non-compliance will result in de-activation of DIN and consequently such Directors will not be able to function as ‘Director’.

Every private limited company in India requires minimum 2 Directors and out of them at least 1 Directors must be a Resident in India (has stayed min. of 180 days in last Calendar year). As a general practice, where ever 2 Directors are Foreign Nationals or Non- Resident in India, a 3^rd Director, who is ‘Resident in India’ needs to be appointed. In a Public Limited Company, there are minimum 3 Directors.

MCA is validating data of all Directors in all companies identify inactive directors, ghost directors, directors who are in default and also update the ‘KYC’ of all Directors, with latest documents of Identification, address, email IDs, Phone Numbers etc

As every document at MCA need to be digitally signed and uploaded electronically, hence a  check need to be carried out about readiness of these documents to meet the compliance due dates and avoid late fee & other consequences.

Who needs to comply?

Every Director (Resident or Non-Resident) in an Indian Company, who has been allotted DIN on or before 31st March, 2018 

What’s required to be done?

1. Indian Nationals Directors will required Digital Signature, which is PAN based. In earlier days DSC used to be prepared even without PAN.
2. Foreign Nationals/Foreign Residents Directors’ will require that their name as mentioned in Digital Signature application form, is exactly matched with his/her name in DIR-3 KYC form. Getting a PAN is not necessary however Passport is a mandatory document.
3. Get the corrections done in the DSC as per above requirements, well in advance.
4. Be ready with Unique Personal Mobile Number and Personal Email ID. Any other persons/other employees/any representatives Mobile Number or Email ID are not allowed.

Can Directors do it themselves?

1. DIR-3 KYC form also need to be approved by any practicing professional (Chartered Accountant, Company Secretary etc before uploading/filing
2. DSC of the practicing professional (Chartered Accountant, Company Secretary etc to be arranged.

What about non-compliance?

1. MCA21 system of Ministry of Corporate Affairs, India will mark such DINs as ‘Deactivated’
2. Filing of the eForm DIR-3 KYC after August 31, 2018 or in respect of such deactivated DINs shall be allowed only upon payment a specified fee of INR 5,000.

How to get DSC?

1. DSC is a digital form of signature which are issued by Licensed Certifying Agencies under Ministry of Information Technology, India and it’s stored in a physical USB/Dongal.  There are plenty of vendors who are authorised by the Licensed Certifying Authorities to prepare DSC.
2. A simple form, signed by the applicant is required to be submitted along with ‘Self Attested’ address & Identification proof to the DSC vendor
3. DSC is prepared for a validity of 1 or 2 years and once it gets expired, it needs to be prepared again. On availability of required documents, it may take 2-4 working days to prepare a new DSC. Hence one needs to keep a track on the expiry date of DSC.
4. In case of Foreign Nationals/Foreign residents, Notorised/Appostiled documents of Address Proof (bank Certificate, Utility Bills) and Identity Proof (Passport, Country Identification card, Bank Certificate etc) required. In case of several countries getting the required documents Translated in English, Notorisation, Apostilation and making them available in India may take 1-3 weeks time.

Source

Please click on the link below for more information

http://www.mca.gov.in/Ministry/pdf/CompaniesAppointmentQualificationRules_06072018.pdf

Glossary

About the Author

With over 15 years of experience, Shashi Mohan has been instrumental in formulating strategy for Entry India, Business Set-up and Operational Management of over 150 overseas brands from USA, Europe, GCC and South East Asian countries in India. He is a member of our ‘Expert Panel’ at Entry India. Shashi can be reached at shashi.m@excelorindia.com or +91 9818 700 482

The following are the actions happened in Indian Technology, Business & Startup Ecosystem.

1. Walmart is in the final stage of negotiations to become the largest shareholder in Flipkart.
2. Online lending startup Avail Finance has raised $17.2 million in a Series A round from Ola's Ankit Bhati and Bhavish Aggarwal, Freecharge founder Kunal Shah & Others
3. N/Core, the incubator for non-profit startups, graduated its first cohort on Friday.
4. Online rummy gaming company www.Ace2Three.com, has acquired a majority stake and invested $1 million in fantasy gaming platform FanFight.
5. US-headquartered payments solution company Wibmo has acquired Gurgaon-based peer-to-peer (P2P) payments company Mypoolin in a cash-and-stock deal
6. Wistron, the Taiwanese contract manufacturer that makes iPhones for Apple in India, is set to invest Rs 682 crore to set up new manufacturing facility near Bengaluru.
7. Micromax India will take a global patent licence from Ericsson, under which it will pay royalties to the Swedish telecom gear maker on every phone it sells in India and overseas that uses 2G or 3G technology.
8. Online foodtech platform SmartQ has raised close to $1mn in funding from a consortium of Dubai based investors.
9. Wedeterna, an online platform for self-arranged marriages, has raised angel funding

Today's top news & stories of the Indian startup ecosystem.

▶ Nexus Venture Partners, is expected to raise its fifth fund targeting a corpus of $350Mn-$400 Mn.

▶ Paytm has launched the Paytm for Business app on Android Play Store today.

▶ Patiala Court restrains ecommerce behemoth Flipkart from using MarQ label.

▶ Income Tax department asks ecommerce giant Flipkart to Reclassify discounts as capital expenditure. 

▶ Inc42 Exclusive: Skillate has raised an undisclosed amount of funding from Incubate Fund India, and others.

▶ RailYatri has acqui-hired Kochi-based food delivery technology startup,YatraChef.

▶ Goomo has acquired a B2B vehicle rental marketplace WagonBee. 

▶ OptaCredit Fintech Private Limited secures $4 Mn credit line from DMI finance. 

▶ AEON Learning has raised $3.2 Mn in a Series B funding round from MEMG Family Office LLP.

▶ Stating that its 100% committed to India, Uber has dismissed report of its exit from the Indian market as “baseless speculation”. 

NOTE: Structure of the company in context here is 'Private Limited'

1. I am a US Passport holder; can I own a company in India?

Yes, you can very well own a company in India (partly or even wholly) or set up your own company in India. Setting up or owning a company in India can broadly be achieved with the following options:

• Buying shares in an existing business
• Starting a new company (please see Point No. 3 below)

The above option to buying shares in an existing company or starting up a new one is same for Foreign National, Foreign Resident, Non Resident Indian`s (NRI), Person of Indian Origin (PIO), Overseas Citizen of India (OCI) [termed as ‘foreign investor’]

2. What are prerequisites to buy shares in an existing business?

In case of a closely held company (Private Limited, Limited Liability Partnership) procedures of valuation of shares, documentation of shares transfer and reporting to Reserve Bank of India need to be carried out.

Shares held by resident Indian can be purchased at a value not less than the value arrived based on guidelines issued by Reserve Bank of India (Please follow the link https://www.rbi.org.in/Scripts/FAQView.aspx?Id=26 to get more information). Resident shareholders need to comply with the requirement of ‘transfer of shares from resident to Non-Resident’, as prescribed by RBI.

3. What are different structures/formats to start my own company?

*Starting as a Proprietorship, local Partnership, One Person Company (OPC) is not permitted

*The above discussed business format does not apply in case the objective is ‘Not for Profit’. For Example Trusts, Societies, Educational Setups etc

4. What is the owner of company called in India?

Shareholders are owner of the company and enjoy rights based on their shareholding percentage. ‘Director is a legal position who takes care of operational activities and also represents to various legal authorities governing the business.

In order to become a Director it is not required ‘to become a Shareholder. A shareholder however can also be a Director. You can also be appointed as a Director in an Indian company wherein you are not a shareholder/owner.

Generally, owner/shareholders of business retain the position of Director as well to take important decision of the business. One can however also appoint any other person to work as a Director on their behalf.

5. Do I need an Accountant or Consultant to start my business (buying shares or starting own company) in India?

Yes, apparently, you cannot do it yourself. You must hire an accountant or consultant to take care of entire process of setting up of your business.

Complete process of registering a company in India is online and one need to prepare documents, fill form and upload everything at website of Registrar of Companies (http://www.mca.gov.in/mcafoportal/login.do). Such forms also need to be verified by a Chartered Accountant (CA)/Company Secretary (CS) before being uploaded online.

6. What are prerequisite to become Director in an Indian Company?

The process starts from getting a Director Identification Number (DIN) in India. In order to obtain DIN, the person must prepare his/her Digital Signature (DSC).

In order to prepare DSC and DIN, one needs to arrange Appostile or Legalised Identity Proof (Passport), Address Proof (Bank Statement, Countries Identity Card etc), DSC Form and few Photographs. 

7. What are prerequisite to become a Shareholder in an Indian Company?

None of typical registrations (Tax, DIN etc) are required to become a shareholder in an Indian company. You need to however prepare a DSC (New Process of Company Registration at MCA) and you need to arrange Appostile or Legalised Identity Proof (Passport), Address Proof (Bank Statement, Countries Identity Card etc), DSC Form etc and few Photographs. 

8. What exactly I need to do to arrange the documents for being a Director?

(a) Steps to arrange for DSC

• Get an accountant/consultant (CA, CS, Lawyer, Business Consultant), who will help you in entire process in preparing government forms, uploading on portals and if required following it up.
• Get your Identity Proof (Passport), Address Proof (Bank Statement, Countries Identity Card etc), DSC Form and few Photographs, Appostile/Legalised in your home country
• Post the documents in Original to your Indian Consultant, who will arrange to get a DSC on your behalf, which is generally valid for a period of 2 years. Give a written authorization to the consultant to affix the DSC only on your approval

(b) Steps to arrange DIN

• Your consultant can fill out form of DIN at Registrar of Companies (ROC) portal, get the same verified and approved from you and upload the same.
• The DIN issued by ROC is a 8 digit number, which is valid for the life time. DIN is a permanent number for being appointed as a Director.

9. Are there any other formalities to be fulfilled to become a Director in Indian Company?

For Indian passport holder there is a formality to obtain a Permanent Account Number (PAN) from Income Tax Authorities. A Foreign National, Foreign

10. Do I need to be present in India in during the process of setting up my business?

It is not necessary to be present in India for being appointed as a director or a shareholder. Similarly, the entire process of business registration can be done online and there is no requirement to travel to India or be present physically at any stage.

In case you are travelling India on a business visa, you can sign all the documents during your India visit. Such documents would not be required to be appostile or legalised in your home country.

In other case, one can arrange to post the stated documents (duly signed, appostiled, legalised), to their hired accountant, consultant in India, who can handle the entire process of obtaining DIN, DSC and coordinate in filing the required form at Registrar of Companies.

11. Is there any local partner (Indian Resident) required by Indian Law?

Companies Act 2013 brought a new provision wherein there must be at least 1 Resident Director in Board of an Indian Company. Resident director is defined as a citizen of India which has resided at least 180 days in a calendar year.

Responsibilities of the resident director are primarily to coordinate with the local government authorities, as and when there is any requirement. He may or may not be involved business decisions or even operational matters. From legal side, there is no predefined remuneration for such director.

12. Can I own 100% equity in Indian business (existing or new)?

Companies Act 2013 allows a Foreign National, Foreign Resident, Non Resident Indian`s (NRI), Person of Indian Origin (PIO) or their business entities overseas to own 100% equity in their business set up in India.

13. Can I open a Single person/ One person company (OPC) in India?

NRI`, PIO`s, Foreign Nationals are not eligible to form a OPC in India. Companies Act 2013 allowed a new concept to form a single person company called ‘’One Person Company (OPC)’, however its only allowed for a Resident Indian.

14. Is there any minimum capital requirement to start a business in India?

There is no minimum required share capital. Recently, the Companies Act 2013 removed the minimum authorized share capital limit (INR 100K for a Private Limited Company, INR 500K for a Public Limited Company)

15. Is there any restriction in starting a Partnership Firm, Limited Liability Partnership (LLP) or buy shares therein?

You can do the same, if the following conditions are met:

1. Indian Partnership Firm should not be engaged in agricultural, plantation, real estate, media businesses (restricted sectors)
2. Amount can only be invested  by way of inward remittance or out of NRE,  FCNR or  NRO accounts maintained with authorized Banks
3. Repatriation of invested fund outside India, not permitted unless permitted by Reserve Bank of India (RBI)

16. What are sources to fund my newly acquired/setup business in India?

In an event where revenue of Indian entity is below Break Even Point (BEP), the initial Capex (Capital Expenses) & Opex (Operational Expenses) requirement can be met through Share Capital (Investment) funded from the shareholders.

External Commercial Borrowings (ECB) is allowed for Capital Expenditures. In current scenario, ECBs are also allowed for Working Capital Expenditure; however certain conditions are imposed by Reserve bank of India (RBI) need to be followed. Please click on the link for more information https://rbi.org.in/SCRIPTs/BS_ViewMasCirculardetails.aspx?id=9840

17. What are further formalities for making the business operational?

Once the legal structure of business (Private Limited Company, Limited Liability Company, Limited Liability Partnership etc) is registered, following activities need to be completed:

1. Registration with Income Tax Authorities: Obtain Permanent Account Number (PAN), Tax Account Number (TAN)
2. Open a Bank Account in desired local or MNC Bank
3. Registration under Value Added Tax: State laws require a registration for trading in Goods
4. Registration of Service Tax: Register for doing trade in Services
5. Register under Shops & Establishment: Location based registration in few states
6. Registration under Professional Tax:  Location based registration in few states

​Appendix:

• Foreign National: A person who is not a naturalized citizen of the country in which he is residing or citizen of a country other than India.
• Foreign Resident: Resident of a foreign country. Generally the term is used for a foreign national.
• Non Resident Indian: Citizens of India, holding Indian Passport, immigrated to any other country for six months or more.
• Person of Indian Origin (PIO): Not a citizen of India but a person of Indian origin or ancestry. As per Gazette of India (Part-I, Section-I) published on 09.01.2015, all the existing Persons of Indian Origin (PIO) card holder registered as such under new PIO Card scheme 2002, shall be deemed to be Overseas Citizens of India Cardholder (http://boi.gov.in/content/person-indian-origin-pio)
• Overseas Citizen of India: Person of Indian Origin (PIO), who was citizen of India on Jan 26, 1950 or thereafter, residing overseas, can register them as Overseas Citizen of India (OCI). OCI`s are entitled to general 'parity with Non-Resident Indians.

Note: Definition of above terms need to be checked from respective section of Foreign Exchange Management Act (FEMA) in specific cases such as acquisition of shares, acquisition of immovable properties, purchasing of Jewelry & bullions etc. This document only covers, these terms with respect to buying shares in an existing business or starting a new company in India.