Setting a Company in India - By Foreign National, NRI and OCI

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.

*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

3. Can we run a company without registration?

No. In order to run business in India, you would require a ‘Bank Account’.  Banks will open an account only when the business is registered in India under any permitted legal structure.

In case your Indian Customers pay directly to your US Bank Accounts, you can very well sell in India. Indian customer will deduct tax (Tax Withholding, TDS), and you/your company will required to avail a Permanent Account Number (PAN) in India. Please get more details at https://entryindia.com/articles/how-nris-and-foreign-organizations-can-get-pan-card-india

Online Services, IT Applications etc. can however be sold to local customers in India without any registration as a local Bank Account in India will not be required. Even in such case applicable local taxes e.g. Goods & Services Tax, Equalization Levy etc. would required to be paid.

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.

To Know what are different structures/formats to start your own company, CLICK HERE

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. What are the 4 stages of formation of a company?

1. Planning Stage: Selection of most appropriate legal structure of company, composition of shareholder & directors, initial share capital, location of registered office etc
2. Incorporation Stage: Arrange the required document, apply for the Company Name, make application at Registrar of Companies, Availa Company Registration Certificate.
3. Capital Subscription Stage: Open a Bank Account for Company, bring in the Initial Share Capital, do the necessary compliance.
4. Commencement of Business Stage: File a form for Commencement of Business and start the operation of the company.

12. Which is better LLP or Pvt Ltd company?

Private Limited/Pvt. Ltd. is opted by most of foreigners, foreign companies for registering their business in India. Registration process of a Pvt. Ltd. is very fast compared to LLP. Corporate Tax in a Pvt. Ltd. is lesser than LLP. 

Partnership company formation in India is done through LLP. Foreign Direct Investment (FDI) is permitted in LLP but as the documentation, cost and other operational requirements are almost similar to a Pvt Ltd, people prefer a Pvt. Ltd. over a LLP.

13. 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.

14. 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.

15. 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.

16. How can I start a Pvt Ltd Company in India?

Company formation requirements in India is very simple. You need 2 shareholders, 2 directors, one director resident in India and an address for registered office. Hire a consultant who will inform the required documents and assist in arranging the same. 

17. How much does it cost to register a company in India?

The cost to register depends on the number of shareholders and directors, complexity of documents and required assistance & services from the local consultant in India. The cost also depend on the status of consultants. A MNC Consultant would charge high and a local consultants fee will comparatively be low. Typically the onetime cost of registration would range between USD 300 – USD 1,500. Additionally, you may require to pay GST and Government Fee. 

18. What is the fees for company registration?

Company Formation Charge of Fee at Registrar of Companies is calculated based at the Authorised Share Capital. In addition, Stamp Duty is required to be paid to the state where the registered office is situated.

Government has exempted the Registrar of Companies Fee for an Authorised Share Capital of INR 1 Million. There is however no exemption in State Stamp Duty.

19. 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)

20. 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)

21. 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

22. What is a company formation document?

As per the Company Formation Rules in India, the following documents required to be arranged in advance:

 

23. 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.

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