Ranked the seventh largest economy in 2017, India is expected to overtake Britain and France in 2018 to be the fifth largest economy and is expected to be the third largest by 2032. Infrastructure projects, cheap energy and the digital revolution are a few of the reasons behind the growth.[i] It has also been suggested that the growth is a result of the trend towards urbanization, a rising middle class that’s expected to more than triple to 89 million households by 2025, increased consumer spending, a young population, changes in technology and government reforms.[ii] Given these forecasts, it appears that India will continue on its high growth trajectory.
Do you want your business to take advantage of this great growth opportunity? First, you have to have a presence in India. Although India’s Ease of Doing Business ranking has improved, its 2018 “Starting a Business” World Bank ranking is still a challenging 156 out of 190 countries.[iii]
How to Set Up a Private Limited Company in India
For foreign investors, private limited companies are most often used for setting up a wholly-owned subsidiary or a joint venture in India. Private limited companies are governed by the Companies Act 2013 and the rules and regulations issued under that Act. Recent changes (post the publication of the 2018 World Bank rankings) by the Ministry of Corporate Affairs simplified the procedure for company formations starting January 26, 2018.[iv]
Even with a simplified procedure, an investor should allow 4 to 6 weeks to form their entity (and that timeline begins only after all the Know-Your-Customer documentation has been collected, reviewed and accepted).
Procedurally, the tedious formation steps are:
- Apply for a digital signature for all the proposed directors and shareholders to enable the signing and filing of the electronic application forms for incorporation.
- Apply for a director identification number for all the proposed directors. A minimum of two directors is required and one must be a resident director.
- Finalize the main objectives of the proposed company, the amount of authorized share capital and address of the registered office of the company.
- Reserve a name for the proposed company (after checking for any conflicting names in the database of the Ministry of Corporate Affairs (MCA) and the Trade Marks Registry).
- File the application within 20 days of receipt of the name approval, along with various documents, including the:
- Memorandum and Articles of Association.
- Declarations from professionals associated with the incorporation.
- Certain declarations from the first directors.
A Certificate of Incorporation is issued when the Registrar of Companies finds that all documents are in order.
Additional Info about Doing Business in India
Investors must also be aware that:
- The minimum paid up capital for a private limited company is 100,000 Indian rupees.
- It is mandatory to apply for the tax Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) at the time of incorporation.
- An auditor needs to be appointed within 30 days from the date of registration.
- It is mandatory for every private limited company to hold an annual general meeting (AGM) in every calendar year. Companies are required to hold their AGM within a period of six months from the date of closing of the financial year. The company is required to file its balance sheet along with Statement of Profit and Loss Account and Director Report on the required form within 30 days of holding the annual general meeting.
Lastly, and beyond the scope of this blog, the investor must be aware that the Reserve Bank of India (RBI) plays a significant role in terms of foreign investment in India. India does not have full capital account convertibility and consequently, the Indian rupee is not a fully convertible currency. RBI maintains exchange control primarily by:
- Providing special or general permission for dealing in foreign exchange.
- Specifying conditions for payment in respect of capital account transactions.
- Regulating the transfer or issue of foreign securities to residents in India and Indian securities to non-residents.
The rupee accounts of non-residents other than banks are also governed by the RBI.[v]
Reap the Rewards
With all this said and (after approximately six weeks) done, revel in the hustle and bustle and noise that is construction projects and a population of more than a billion people. Seize the potential that India’s consumer base and infrastructure investment has to offer. And maybe, just maybe, you could be standing tall in 2032, in the third largest economy in the world!
This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.
[ii]. Kaka, Noshir, Alok Kshirsagar, and Anu Madgavkar. “India’s economy: Why the time for growth is now.” McKinsey Global Institute. Podcast. September 2016. https://www.mckinsey.com/global-themes/india/indias-economy-why-the-time-for-growth-is-now.
[iii]. “Ease of Doing Business in India.” Doing Business. http://www.doingbusiness.org/data/exploreeconomies/india.
[iv]. “Company Registration Process (2018 Version).” India Filings. https://www.indiafilings.com/learn/company-registration-process-2018-version/.
[v]. Luthra, Rajiv, and Shinoj Koshy. “Doing business in India.” Thomas Reuters Practical Law. Country Q&A 4-500-8980. https://uk.practicallaw.thomsonreuters.com/4-500-8980?transitionType=Default&contextData=(sc.Default).