Why Register Your Company in India as a Foreigner
Registering your company in India as a foreigner has several benefits.
Firstly, India provides a vast market with almost 1.4 billion people, making it the world’s second most populated country. By registering your business, you gain access to this immense customer base and can tap into several sectors of the economy.
Secondly, registering your company allows for easy repatriation of profits earned by your enterprise. Indian regulations allow up to 100% FDI (Foreign Direct Investment) in various sectors such as manufacturing or construction, which makes it an attractive proposition for businesses seeking investment opportunities.
Lastly, India is undergoing substantial digitization across all industries.
With advanced technological infrastructure and government policies promoting digital banking systems along with GST (Goods and Service Tax), can operate smoothly while minimising potential issues arising from compliance gaps.
Types of Companies in India
The following are the types of companies recognised by the Indian Companies Act 2013
Limited Liability Partnership:
This is the preferred form of business structure for most entrepreneurs, as it has the characteristics of a partnership and a company.
You can establish a limited liability partnership in India with a minimum of two partners whose liability is separate from that of the partnership. This partnership is governed by a partnership agreement and has no requirement for a minimum amount of paid-up capital before formation.
You stand to benefit from low costs and fewer compliance requirements. Unlike limited liability companies, limited liability partnerships in India are required to only file an Annual Return and a Statement of Accounts and Solvency annually.
Private Limited Company
This is the most prominent business structure common among businesses in India; everyone,from established entrepreneurs to upcoming start-ups, is opting for this form of business structure.
A private limited liability company is often opted for because it establishes a separate legal entity distinct from that of the directors.
To register a private limited company, you require a minimum of two shareholders, a maximum of 200 shareholders, and no minimum paid-up capital.
One Person Company
A one person company is recognised under Section 13 of India’s Company Act 2013. Here, you are the only member of the company.
The following are the features of a one person company:
- Separate legal entity
- The company may or may not continue after the demise of the only member.
- There is no minimum capital requirement
- Only one director required
Public Limited Company
This is a preferred choice if you plan to raise capital from the public.
Here, you, as an investor, can transfer ownership in the company by just selling shares in the company.
The company operates a flexible business structure as operations is distinct from ownership
The following are the features of a public limited company:
- Separate legal entity
- Transferability of shares among public
- Perpetual Succession
- Payment of the minimum paid-up capital of Rs 5 Lakh
- Inclusion of the term “LTD” at the end of the company name
- Minimum of three directors
- Minimum of seven members
- Annual prospectus
This company is formed and registered for the purpose of producing, harvesting, marketing, selling, and exporting agricultural products.
To invest in this type of company, you must be a primary producer engaged in primary agricultural activities.
These agricultural activities include the following:
- Animal Husbandry
- Fish Farming
The features of this type of company include the following:
- A producer company must be a private limited company with more than 50 members.
- The business objective focuses on agricultural produce.
- The name of the company must include ‘producer company’.
- Only equity shares are issued, and voting rights are restricted to one man-one vote, regardless of the member’s shareholding.
- Minimum of five directors and a maximum of 15 directors.
- Must maintain a general reserve each year.
- Minimum paid up capital of Rs. 5 lakh.
This type of company is a non-banking financial institution that engages in thrift and savings among its members.
It provides services like lending and deposits exclusively to its members.
The features of this type of company include:
- It must be registered as a public company.
- It must have a minimum paid-up equity share capital of Rs 5 lakh.
- Promotes savings and thrift.
- Provide short-term deposits.
- ‘Nidhi Limited’ must be included in the name of the company.
- It must have at least 200 members.
- Can only engage in business among members.
- Provides short/long term loans with minimum documentation.
- A corporate body or trust cannot be admitted as a member.
- No service charge is issued on the issuance of shares.
Company established under Section 8 of the Companies Act, 2013:
This type of company aims to promote charitable causes and is often a non-governmental organisation operating as a company.
The profits earned by this company are directed towards charitable causes and cannot be paid as dividends among its members.
You, as an investor interested in pursuing charitable causes in India, can register this type of company.
Before you make a decision on which company to register, let’s browse through some factors you should consider.
Factors to Consider in Choosing a Suitable Company to Register
In choosing a suitable type of company, you should consider the goals and needs of the company before you take steps to register it.
To choose the right business structure, you should consider the following factors:
Objectives of the Company:
The goal of the company often influences the type of company to be registered. For instance, start-ups and family owned companies are often advised to register a private limited company, while agricultural companies may opt for a producer company.
Further, cooperative societies can opt to register a Nidhi company, while NGOs can opt for a company recognised under Section 8 of the Companies Act.
The ease of set-up can also influence your choice of the type of company to register. For instance, a financial institution may opt to register a Private Limited Company rather than a public company due to the bureaucratic and legal procedures involved.
Administrative Load, Compliance Requirements, and Scrutiny:
This is another factor you must consider when choosing a suitable type of company. Administrative and compliance requirements for a private company are lower and less expensive.
For instance, the compliance requirements for a one person company and limited liability partnership are less and more inexpensive as compared to those of a public company or Nidhi company.
Also, directors of a public company, including a Nidhi company are subject to more scrutiny and must use reasonable skill, care and diligence in their business activities
Personal Liability and Risk:
The risk to which you, as a member of a company, will be exposed should also be considered.
A one person company, although it creates separate liability, exposes you to more liability and risk than a private limited company or public limited company.
The tax considerations that are applicable to the type of company you choose are also an important factor you should consider.
For instance, the tax implications of a Limited Liability Partnership are restricted to your personal income tax.
While producer companies and start-ups enjoy greater tax exemptions than public limited companies and private companies,
Companies registered under Section 8 of the Companies Act are exempt from paying tax due to their charitable causes.
If you aim to expand your business in the long-run, your choice of company must foster this goal.
For instance, in terms of securing funds and investment opportunities, a private limited company and a public company stand a better chance of securing funding than a one person company.
This is because as a private limited liability company, you can offer shares as a security for loans, while a one person business cannot offer shares without altering the structure of the company.
Steps to Registering a Company in India
Registering a company has become easier as the registration process has shifted online and can be done from the comfort of your home.
The following are the steps to take to register a company in India.
Check Company’s Name Availability
You should check if the proposed company’s name is available for use. This can be done via the Ministry of Corporate Affairs’ portal.
Documents Required for Registration
Gather the documents required for registration and get them certified by either a chartered accountant or a company’s secretary.
The following are the documents you are to gather for registration:
- Identity Proof Documents: This can be either of the following
- PAN Card: This is an important document that the proposed directors of the company are to provide for registration. It is a unique identification issued by the Income Tax Department of India. It is necessary for all matters related to the finances of the company.
- Aadhaar Card.
- International Passport if you are a foreign investor.
- Driving Licence
- Voter Identity Card
- Address Proof of the Directors of the Company: The proposed directors of the company are to provide proof of address. This can be either of the following:
- Telephone Bill
- Utility Bill
- Bank Statements
- Proof of Registered Office: You are to provide proof of a physical and functional office in India. A sales agreement or rent agreement is acceptable as proof of a registered office in India:
- Digital Signature Certificate: Since you are to submit this application electronically, the provisions of the Indian Information Technology Act, 2000, must be complied with. This Act provides for the use of digital signatures on documents submitted in electronic form in order to ensure the security and authenticity of the documents filed electronically. To facilitate the registration process, you are to acquire this certificate to authenticate the documents to be uploaded on the MCA portal.
- Director Identification Number: This is an identification number that anyone who wants to be a director of the company must get.
Draft the Memorandum of Association and Articles of Association:
These documents outline your company’s objectives and state the rules, principles, and regulations that your company is to follow.
Apply for Company’s Registration with the Ministry of Corporate Affairs
To make company registration easier, the government has introduced a Simplified Proforma for Incorporating a Company Electronically (SPICe). This is a form used when applying for the registration of a company.
This form is submitted along with the required documents on the Ministry of Corporate Affairs portal to apply for company registration.
Process the Application form
Your application is then assessed by the Registrar of Companies. If you have made no mistake, you will be issued a certificate of incorporation with the company registration number.
Benefits of Company’s Registration
The benefits of registering a company in India are as follows:
- Separate Legal Entity: A registered company is a separate legal entity from its directors and shareholders. It has a legal identity that is capable of acquiring assets, entering into contracts, and engaging in legal proceedings. The liability of the directors and shareholders is limited to the shares they own.
- Perpetual Succession: The company’s existence continues even after the demise of any of its directors or shareholders. Although a one person company has to transfer its shares to a nominee to have perpetual succession.
- Transferability of Shares: The company’s shares can be easily transferred to a third party. For a private company, a board resolution is necessary to transfer shares to third parties, while a public company can easily issue shares to the public.
Frequently Asked Questions
How are companies registered in India?
Companies can be registered in India using the following steps:
– Check the company’s name availability
– Furnish the required documents
– Draft MOA and AOA
– Fill out the online application form
– Get the certificate of incorporation
How can a foreigner register a company in India?
A foreigner can register a company in India by following the steps highlighted in this article.
Can I register an Indian company online?
Yes, company registration in India is now done online.
What is the difference between a sole proprietorship and an OPC?
A sole-proprietorship is an unregistered business entity owned, managed, and controlled by one person. An OPC, on the other hand, is a single member company where one person can act as the director and shareholder.
How much does it cost to register a company in India?
The cost of registration would be dependent on the type of company to be registered and the number of directors.
Can OPC be converted into a private limited company?
Section 18 of the Companies Act allows a One Person Company to be converted into a private limited company with more than one member.
How long does it take to register a company in India?
The length of time varies depending on the type of company and if all required documents are in order. However, it typically takes 10-18 working days.
Which documents are required for the registration of a company?
The following are the documents required for the registration of a company:
– PAN card of the directors of the company
– Address proof of the directors of the company
– Passports of the foreign nationals
– Passports of the foreign nationals
– Proof of the registered Office
– Digital Signature Certificate
– Director Identification Number
How do I check the company registration status?
You can check company registration status via the Ministry of Corporate Affairs portal.