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There is no secret of the recent and meteoric rise of the planet’s second-most populous country, both in terms of its economy and technological development. Its impressive economic performance is set to continue with a projected 8.6% GDP growth in 2021, and it’s expected that 500 million Indians will rise to the middle class in the next decade.
India has also benefited from the United States-China economic war, with industry giants like Samsung and Apple moving substantial parts of their operations to India in recent times.
With all of this foreign interest, the Indian Government is beginning to overhaul its systems to make it easier to invest and do business in India.
Table of Contents
In this article, we take a look at how you can set up your company in India in 2021.
What Are the Types of Businesses in India?
While not technically a company, a sole proprietorship bears mentioning as it is the easiest, simplest way to get into business in India. It only requires one person to set up and operate, and you have full control over your business.
There is no government registration required, and all profits from the business are yours. Do be aware though, a sole proprietorship, unlike a company, does not have limited liability. This means if the business owes debts to creditors, you will be personally liable for those debts.
One Person Company
A relatively new business structure, the One Person Company (OPC) was introduced in 2013 by the Indian Government. Prior to 2013, it was required that a private company have at least two directors and two members, while a public company had to have at least three directors and seven members to be incorporated. However, with the advent of the OPC, a single individual could incorporate their own company.
The major advantages of incorporating an OPC as opposed to a sole proprietorship is that while you still retain 100% of the business, you are also able to limit your liability as well as qualify for certain tax benefits. It should also be easier for you to obtain bank loans as financial institutions will see your limited liability as less risk.
The director and nominee directors cannot be foreigners.
As the name implies, a partnership company is for when your company has two or more partners that act as directors. You and your partner/s will have a partnership deed drafted that details all of the obligations and duties of each partner, as well as the particulars of profit sharing.
The partnership company enjoys all of the same benefits as an OPC, except now the risk is minimised for each director, as it is shared amongst the partners. It should be noted that this is not a limited liability company, so the partners are personally liable for the company’s debts. A maximum of 50 partners is permitted in a partnership company.
Limited Liability Partnership
A limited liability partnership takes the flexibility of a partnership company and provides the extra benefits of limited liability.
Foreign investment is allowed under approval from the Reserve Bank of India (RBI), and the Foreign Investment Facilitation Portal (FIFP).
Private Limited Company
Larger in scope than a partnership company, a private limited company has a maximum of 200 partners. A private limited company, as referred to in its name, cannot raise capital from the public, so all funding must be raised internally, rather than issuing shares publically.
A private limited company can however receive funds from public platforms and issue debentures to obtain funding.
Foreign investment is allowed under automatic approval for most industry sectors.
Public Limited Company
A public limited company has a minimum of seven shareholders and is permitted to raise capital through a public offering of shares. Shareholders are able to transfer shares freely and prospectus must be published for the use of public issue.
Foreign Direct Investment (FDI) is allowed under automatic route in the government permitted sectors.
Section 8 Company
A section 8 company is to be established for the promotion of a cause, e.g. sports, religions, social welfare etc. The company is a non-profit, so all income is to go to the benefit of the cause itself, and no dividends are to be paid to its members.
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Comparison of Different Company Types in India
|Min Members||2||7||1||2 partners|
|Max Members||200||Unlimited||1||No Limit|
|Min Directors||2||3||1||2 Designated Partners|
|Max Directors||15||15||15||No Limit|
|Transfer of Ownership||Ownership can be transferred through share, max 200 shareholder||Ownership can be transferred||Ownership can be transferred to nominee in the event of death of owner||Ownership can be transferred|
|Subscription of Shares||Public subscription not allowed||Public subscription allowed||Public subscription not allowed||Public subscription not allowed|
|Issue of Prospectus||Not Mandatory||Mandatory||Not Mandatory||Not Mandatory|
|Managerial Renumeration||No limit for managerial personnel||Govt. approval, if remuneration payable is above limits||NA||Remuneration is based on LLP agreement|
|Commencement of Business/Operations||Immediately after obtaining certificate of incorporation||Immediately after obtaining certificate of incorporation||Immediately after obtaining certificate of incorporation||Immediately after obtaining certificate of incorporation|
|Legal Status||Pvt Co is a separate legal registered under Companies Act, 2013. The Directors are liable for defaults made under the act||Public Co is a separate legal registered under Companies Act, 2013. The Directors are liable for defaults made under the act||OPC is a separate legal registered under Companies Act, 2013. The Directors are liable for defaults made under the act||LLP is a separate legal registered under LLP Act, 2008. The designated partners of LLP are liable for contraventions under the act|
|Governing Act/Law||Companies Act, 2013||Companies Act, 2013||Companies Act, 2013||LLP Act, 2008|
|Foreign Ownership||Investment allowed under automatic approval route in most sector||FDI is allowed under automatic route in the government allowed sector||The Director and Nominee Director cannot be foreigners||Allowed with prior approval of RBI and FIPB|
|Annual Statutory Fillings||Annual statement of accounts & annual return with ROC||Annual statement of accounts & annual return with ROC||Annual statement of accounts & annual return with ROC||Annual statement of solvency & annual return with ROC|
|Annual Fillings||IT return to be filed||IT return to be filed||IT return to be filed||IT return to be filed and audit mandatory in case turnover exceeds INR 40 lakhs|
What Are the Steps for Registering and Incorporating a Company in India?
1. Obtain a Digital Signature Certificate
The first thing you’ll need to do is apply for and obtain a Digital Signature Certificate (DSC), which will give you the ability to complete the online process for company registration in India. You can get a DSC from a Certifying Authority, a list of which can be found here.
2. Obtain a Digital Identification Number
A Digital Identification Number (DIN) is obtained from the State of Ministry of Corporate Affairs (MCA). All directors (current and intending) must obtain a DIN. A company director then sends all DINs to the Registrar of Corporate (RoC).
Any changes of personal details e.g. name, address, needs to be updated in the DIN registrar.
3. Compile the Necessary Information and Documentation
You will need to have the following documents:
- Form SPICe+ (Simplified Proforma for Incorporating Company Electronically Plus Form INC-32)
- Electronic Memorandum of Association (eMoA- INC 33) and Articles of Association (eAoA- INC 34) IN Spice+ Form INC 32.
- Form AGILE-PRO (INC-35) in Spice+ Form INC 32 for Application for registration of Goods and Service Tax Identification Number (GSTIN), Employee State Insurance Corporation (ESIC) registration, Employees’ Provident Fund Organisation (EPFO) Registration and Profession Tax Registration (For Maharashtra) and Opening of Bank Account.
The MCA system will then automatically provide you with the prefilled 49A (PAN) and 49B (TAN) application forms. Have your directors attach their digital signatures, and attach both signed forms to an MCA21 form.
RoC will then verify your documents, and suggest changes where necessary.
Upon approval from RoC, you will receive your company seal for issuance of share certificates. You will also receive your certificate of incorporation allowing your company to do business in India.
Conclusion — Next Steps
The Indian Government is certainly making major steps in freeing up its economy, and with it simplifying the incorporation process for foreign investors. However, there is still much room for improvement in terms of the ease of incorporation in India.
For this reason, if you’d like to make the incorporation process in India as seamless as possible, we advise you to use a local, registered, and reputable incorporation service provider that can cut through the sometimes substantial red tape.
We’ve made an effort to give you as much free information as possible in this short article, but if you have any questions about incorporating your company in India, ask us below.
We’ve been doing this for a long time all around Southeast Asia, so we’re sure to be able to save you time, money, and headaches.
If you’d like a personal consultation to advise on your move to India, please do contact us, it’s both our job and pleasure to help.
- In India, there are 7 types of business entities:
- Sole Proprietorship
- One Person Company
- Partnership Firm
- Limited Liability Partnership
- Private Limited Company
- Public Limited Company
- Section 8 Company
- A Section 8 Company is established for the promotion of a cause, e.g. sports, religions, social welfare etc. The company is a non-profit, so all income is to go to the benefit of the cause itself, and no dividends are to be paid to its members.
- One Person Company (OPC) was introduced in 2013 by the Indian Government to allow single individuals to set up a company in India.
- These are the 3 main steps you will need to do to register a company in India:
- Obtain a Digital Signature Certificate
- Obtain a Digital Identification Number
- Compile needful information and documentation.