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A Guide to Indian Private Limited Company for Foreigners

A Guide to Indian Private Limited Company for Foreigners

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A Guide to Indian Private Limited Company for Foreigners

India is one of the fastest-growing economies in the world and attracts plenty of foreign direct investment (FDI) and private equity capital.

As reported by Nomura—a Japanese brokerage firm—FDI into India has been $34.9 billion in the financial year 2015; this was a massive 61.6% jump from $21.6 billion in the previous fiscal.

With the world’s second-largest population and a large talent pool of skilled information technology professionals, our country continues to be an attractive destination for investment among foreign companies and foreign nationals.

Overview of India Entry Strategies for Foreign Companies/Foreign Nationals

We now discuss the available types of entry strategies into India.

Incorporation of a Private Limited Company or Limited Company

The incorporation of a private limited company or limited company is the easiest and fastest way for both foreign nationals and foreign companies to enter India.This is for the simple reason that upto 100% of FDI into a private limited company or limited company is automatically authorized as no permission from the central government is deemed essential.

Therefore, incorporation of a private limited company either as a wholly owned subsidiary of a foreign company or a joint venture is the cheapest, easiest, and fastest entry route for both foreign companies and foreign nationals into India.

Incorporation of a Limited Liability Partnership

The incorporation of a limited liability partnership (LLP) is also an India entry strategy for foreign nationals or foreign companies as 100% FDI in LLP is now allowed. However, it must be borne in mind that an LLPcannot have shareholders and therefore must be represented by partners alone—thus making it a preferred choice for both investment vehicles and professional firms.

Registration of Branch Office, Liaison Office, or Project Office

Registration of a branch office, liaison office, or project office requires the Reserve Bank of India (RBI) and/or government approval. Hence, the cost involved and time taken for registration of a branch office, liaison office, or project office for a foreign company are higher than the cost involved and time associated with the incorporation of a private limited company. Further, the law does not permit foreign nationals to open a branch office, liaison office, or project office in our country.

FDI in Private Limited Company

In most sectors, FDI into an Indian private limited company or limited company is allowed upto 100%. However, only a very few sectors require permission from thecentral government for investment by a foreign company or foreign national. The following sectors require government approval for investment by a foreign company or foreign national:

  1. Petroleum sector (except for private sector oil refining), natural gas/liquefied natural gas pipelines
  2. Investing in companies in infrastructure
  3. Defence and strategic industries
  4. Atomic minerals
  5. Print media
  6. Broadcasting
  7. Postal services
  8. Courier services
  9. Establishment and operation of satellite
  10. Development of integrated township
  11. Tea sector
  12. Asset reconstruction companies

Incorporation of Private Limited Company for Foreign Companies and Foreign Nationals

The following are the steps involved in the incorporation of an Indian private limited company for foreign nationals or foreign companies:

Management and Shareholding Structure

It is mandatory that a private limited company must include a minimum of two shareholders and two directors. A shareholder can be either a person or a corporate entity;however, a director essentially has to be a person. As per the existing laws, foreign nationals are permitted to become directors of an Indian private limited company.

It is essential that the board of directors of an Indian private limited company must have at least one director who is both an Indian citizen and an Indian resident. However, the Indian director need not be a shareholder in the company. Therefore, most foreign companies or foreign nationals wish to incorporate a company in our country with three directors—two foreign national directors and one Indian national director.

Our law permits that the 100% shares of an Indian company can be held by a combination of foreign companies and/or foreign nationals. However, Indian private limited companies must include a minimum of two shareholders.

Popular Indian Company Structures with Foreign Stakeholders

  1. 100% foreign shareholding: one or more Indian directors; one or more foreign directors; and two foreign directors
  2. Foreign subsidiary: one or more Indian directors; one or more foreign directors;and 51% or more shares of an Indian company held by a foreign company
  3. Joint venture: one or more Indian directors; one or NO foreign director. Shares held by both Indian and foreign nationals or companies.

Obtaining Digital Signature Certificate for Foreign National Directors

A digital signature certificate (DSC) is essential for filing the incorporation and continued compliance documents for a company. Hence, digital signatures must be obtained for one or more director(s) of the company. The following video link is a guide to submitting a digital signature application:

The following are the documents and information required for obtaining a DSC for a foreign national:

  1. Foreign national is a residentofthe native country
    • If the native country is a signatory of the Hague Convention: For attestation, identity proof, proof of address, and a photograph on the DSCapplication should be notarized by the public notary of that native country and also apostilled by the competent authority of that native country.
    • If the native country is not a signatory of the Hague Convention: For attestation, identity proof, proof of address, and a photograph on the DSC application should be notarized by the public notary of that native country and also consularized by the competent authority of that native country. Documents required: passport andapplication form with a photograph (all attested).
  2. Foreign nationals residing in India
    • The following documents should be certified by the individual’s Embassy:
      • The resident permit certificate issued by the Assistant Foreigner Regional Registration Officer, an officer of the Bureau of Immigration India.
      • Passport
      • Visa
      • Application form with a photograph(attested)
  3. Foreign national neither in India nor in the native country
    • In such a case, the following documents should be certified by the local embassy of the country to which the person belongs:
      • Passport
      • Visa
      • Application form with a photograph(attested)

Name Approval

In parallel to the DSC application process, name approval can be obtained for the proposed company. The name of the Indian company must be unique and should end with the words “Private Limited.”

Filing for Incorporation of a Private Limited Company

Once name approval is obtained, incorporation documents can be filed with the Ministry of Corporate Affairs to incorporate the company. The incorporation documents to be filed include affidavits and declarations from directors, memorandum of association (MOA), articles of association (AOA) subscriber sheet, and Registered Office address proof.

It is pertinent to note here that the affidavit from the directors contains certain declarations. Affidavit and declaration would have to be executed independently for each of the directors and notarized (for Indian as well as foreign directors).

Subscribing to the MOA and AOA

By subscribing to the MOA and AOA, the shareholders (either foreign companies or foreign nationals or Indian companies or Indian nationals) show their intention for becoming a shareholder in the company to be incorporated.

In case a foreign company is a subscriber to the MOA and AOA of the proposed Indian company:

The following documents pertaining to the foreign entity subscribing to the shares of the Indian company must be submitted:

  • Board resolution of the foreign entity authorizing investment in shares of the Indian company
  • Certificate of incorporation of the foreign company (a copy)
  • Copy of address proof for the foreign company

Once the submission of the documents listed earlier is completed, along with the application for incorporation of a company, then the Registrar would issue a Certificate of Incorporation for the Indian private limited company;however, the Registrar would issue the certificate only if the documents submitted are legal and valid.

Once the certificate of incorporation is obtained, then the foreignentity can apply for a permanent account number card and proceed to take the necessary steps for opening a bank account for the company in India.

The Government of India has permitted foreign nationals to invest in India for attracting FDI into India.The government has also extended the ease of doing business for both foreign nationals and foreign companies by simplifying their business in India through the Foreign Exchange Management Act, 1999, FDI, and RBI policies.

Thus, based on our discussion so far, foreign companies and foreign nationals can invest in India by purchasing shares of an Indian company, investing in the capital of an existing company, or registering a new business in India.

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