What this is - Now is the time to start doing business in India because it is expected to be the third-largest economy by 2036, due to factors such as infrastructure projects, cheap energy, and the digital revolution.
What this means - India is full of business potential and investors need to be aware of certain regulations like minimum capital requirements, mandatory application of tax numbers, auditor appointment, and annual general meeting requirements.
At the height of the COVID-19 pandemic, India experienced the third-highest death toll worldwide. However, the country’s vaccine drive resulted in a drop in daily cases and has contributed to a sharp rebound in economic activity. Ranked the seventh largest economy in 2021, India is expected to be the third largest by 2036. [i] Infrastructure projects, cheap energy and the digital revolution are a few reasons behind the growth. It’s also been suggested that the growth is a result of a trend towards urbanisation, a rising middle class, increased consumer spending, a young population, changes in technology, and government reforms.[ii] India’s Ease of Doing Business ranking has improved to 62 according to the 2019 “Ease of Doing Business” World Bank ranking.[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, one should allow 4 to 6 weeks to form an entity (and that timeline begins only after all the Know-Your-Customer documentation has been collected, reviewed and accepted).
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Steps to Forming a Business in India
- 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.
- Finalise the main objectives of the proposed company, the amount of authorised 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 Trademarks Registry). At least five prospective names are recommended due to potential conflicts.
- 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 Information 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
Establish your business today by working with an experienced international team who can help you to seize the potential that India’s consumer base and infrastructure investment have to offer. You could be standing tall in 2036 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.
[i]. “World Economic League Table 2022.” Published by Centre for Economics and Business Research. https://cebr.com/wp-content/uploads/2022/01/WELT-2022.pdf
[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/featured-insights/india/indias-economy-why-the-time-for-growth-is-now.
[iii]. “Ease of Doing Business.” The World Bank https://data.worldbank.org/indicator/IC.BUS.EASE.XQ
[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).