Establishing a company in India – Overview

Indian economy is one of the fastest-growing economies in the world with GDP growth of around 7 – 8% and a population of over 1 billion as per World Bank Data (2016). The statistics show that India as of now boasts of a profitable and stable economy and has already entered the league of emerging markets thus making it an attractive option for foreign investors.

The common forms of setting up a business in India are:

• Private Limited Company (PLC),
• Public Limited Company (PC),
• Limited Liability Partnership (LLP).

From a foreign company’s point of view, a Private Limited Company (PLC) is one of the highly recommended ways to start a business in India. PLC offers limited liability for its shareholders with certain restrictions placed on the ownership. An LLP has partners, who own and manage the business. Whereas in a PLC and PC, directors may be different from shareholders.

Brief Steps for the formation of a company

• First and the foremost step for setting up a company in India is filing an application for reservation of a unique company name for the proposed company. The applicant has an option to provide two (2) name choices in the web application. The proposed names can either be accepted or rejected based on the scrutiny by the Registrar, Central Registration Centre (CRC). In case the applied names are not available and approved by the department, then further two more names can be provided and thereafter applied for. An approved name is valid for a period of 20 days from the date of approval.
• The next step is obtaining a digital signature certificate (DSC for proposed directors and shareholders) and Director Identification Numbers (DIN) for proposed directors. As per the applicable law, for incorporating a PLC, a minimum of two directors is required and one of them needs to be a director resident in India. Also, it is mandatory for all proposed directors to hold a valid DIN.
• Once the name is approved, the drafting of company incorporation documents such as declarations by directors and shareholders, memorandum and articles of associations (MOA and AOA) and documents relating to registered office addresses of the company and filing it on the web portal of MCA registry will be done.
• The PAN and TAN are also applied simultaneously to the company Incorporation.
• As per the recent amendments, a web-based filing, i.e. SPICe+ shall be undertaken for the incorporation of a company and shall be accompanied by the e-form AGILE-PRO for mandatory application for the following additional registrations for the company:
• Goods and Service Tax Identification Number (GSTIN)
• Employees’ Provident Fund Organization (EPFO) registration
• Employee State Insurance Corporation (ESIC)
• Profession Tax Registration
• Opening of Bank Account
• Once the application is approved by the CRC, a Certificate of Incorporation is issued to the company as a proof of registration of the company with the MCA.
• Additionally, a company with share capital, shall not commence any business or exercise any borrowing powers unless it receives the certificate of commencement of business from the Registrar of Companies (ROC).

The next step is obtaining a digital signature certificate (DSC for proposed directors and shareholders) and Director Identification Numbers (DIN) for proposed directors. As per the applicable law, for incorporating a PLC, a minimum of two directors is required and one of them needs to be a director resident in India. Also, it is mandatory for all proposed directors to hold a valid DIN.
Once the name is approved, the drafting of company incorporation documents such as declarations by directors and shareholders, memorandum and articles of associations (MOA and AOA) and documents relating to registered office addresses of the company and filing it on the web portal of MCA registry will be done.
The PAN and TAN are also applied simultaneously to the company Incorporation.
As per the recent amendments, a web-based filing, i.e. SPICe+ shall be undertaken for the incorporation of a company and shall be accompanied by the e-form AGILE-PRO for mandatory application for the following additional registrations for the company:
Goods and Service Tax Identification Number (GSTIN)
Employees’ Provident Fund Organization (EPFO) registration
Employee State Insurance Corporation (ESIC)
Profession Tax Registration
Opening of Bank Account
Once the application is approved by the CRC, a Certificate of Incorporation is issued to the company as a proof of registration of the company with the MCA.
Additionally, a company with share capital, shall not commence any business or exercise any borrowing powers unless it receives the certificate of commencement of business from the Registrar of Companies (ROC).
Note: Alternatively, instead of filing separate DIN Applications and Name Application, we can also apply for Director Identification Number of maximum three Directors and the name for the proposed company in the incorporation application itself, however, in this case, we can apply with one name only with utmost surety that the proposed name is unique.

Post Incorporation: The legal work does not end with the incorporation of the company. Post incorporation a company needs to undertake a series of compliances and statutory registrations, such as, maintaining of books, allotment of shares, obtaining Import Export Code (IEC),  and undertaking day to day secretarial compliances and other services which A&A provides to its client on a daily basis as an In-house/ General Counsel legal service.

Mr. Nipun Khanna is the founder of this firm- Startup Solicitors LLP

Nipun Khanna

info@startupsolicitors.com