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Doing Business in India – Company Incorporation – Part 3

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Here is the 3rd part of a 4 part article written by Sumeet Kachwaha of Kachwaha & Partners giving legal perspective of things if you plan on doing business in India. This aims to be an easy to read, yet comprehensive overview of legal issues involved in doing business in India.

CORPORATIONS

The law of corporations in India is governed by the Companies Act, 1956. Broadly, there are two types of companies – Public Limited Companies and Private Limited Companies. While Public Limited Companies describe themselves merely as “Limited Companies”, Private Limited Companies are obliged to indicate clearly the fact that they are a Private Company by adding after their name “Pvt. Ltd.”

Private Limited Companies:

A Private Limited Company can be formed with a minimum of two persons as shareholders and a minimum of two directors. The minimum paid up capital for a Private Company is about US$ 2500 (approximately). A private company has the following features:

  1. The right to transfer shares is restricted as per its Articles of Association.
  2. The maximum number of its shareholders is limited to 50.
  3. No offer can be made to the public to subscribe to its shares and debentures.
  4. No invitation or acceptance of deposits from persons other than members, directors or their relatives is allowed.
  5. Lesser number of compliance requirements.

Thus generally, where there is no requirement for raising finances through the public and the ownership is intended to be closely held, a Private Limited model is followed.

Public Company:

A company which does not contain restrictive provisions in its Articles is a Public company. Unlike Private companies, Public companies can be formed with a minimum of seven members. There is no maximum limit on shareholders for Public companies. The minimum paid-up capital required for a Public company is about US$ 12500 (approximately) and the minimum number of directors is three.

Incorporation Formalities:

There is no need to appoint an Indian director or Indian shareholder to incorporate a company.

Incorporation is through registration with the Registrar of Companies (ROC). The ROC is a statutory authority formed under Companies Act and has numerous offices all over India.

For incorporation, the following steps are involved:

  1. Selection of name of the company and getting it approved from the ROC. Upon scrutiny and satisfaction, the ROC issues a name availability letter.
  2. After the name is approved, Memorandum and Articles of Association (MoA) are drafted.
  3. MoA along with other necessary documents are filed with the ROC. The filing fees is dependent on the authorised share capital of the Company.
  4. After scrutinising the documents, the ROC issues a Certificate of Incorporation.

Whereas Private companies can commence their business from the date of Certificate of Incorporation, Public companies are required to file certain additional documents and obtain a Certificate of Commencement of Business.

A company can normally be incorporated within a period of 15 to 20 days. The Government has recently introduced e-filing through which Company incorporation (including subsequent statutory documents) can be filed in electronic form. Details of e-filing procedure are available at the website of Ministry of Company Affairs at www.mca.gov.in.

WINDING UP:

There are three ways to wind up a company:

  1. Voluntary winding up,
  2. Winding up under orders of the court,
  3. Declaration of the company as defunct

(i) Voluntary Winding Up:

This is permitted when the company has no debt or is in a position to meet its liability in full within a maximum period of three years. The consent of all the creditors have to be taken. Upon approval of the Registrar of Companies, a private liquidator is appointed to dispose off the assets and prepare a preliminary report. This is subject to scrutiny by the Official Liquidator and upon his satisfaction of legal compliances. The final order of winding up is subject to orders of the High Court.

(ii) Winding Up Under Orders Of The Court:

This can happen under a variety of circumstances. Mostly it happens where the company is unable to pay its debts and the Court is satisfied that it would be just and equitable to wind up the company. This route involves an elaborate and time consuming exercise whereunder the High Court appoints a liquidator and the directors of the company are required to file a statement of assets and liabilities of the company with the liquidator upon which the liquidator takes up the task of disposing off assets and satisfying the debts of the company from the proceeds. Once the debts are satisfied (to the extent they can be) and all monies which can be recovered are recovered, the court passes a final order for winding up. The debts of the company are paid out as per a schedule of priority. The top most priority goes to the workmen and the secured creditors. Next in terms of priority are Government taxes. Only thereafter the debts of unsecured creditors are payable.

(iii) Declaration As A Defunct Company:

This option can be resorted to without any recourse to a court. This route is available through a simple letter to the Registrar of Companies stating that the company is not carrying on any business for a year or more. Upon being so satisfied, the Registrar can strike off the name of the company from the Register of Companies on the ground that it is a defunct company. However notwithstanding that the name of the company is struck off, the company and its directors shall continue to be responsible for any undischarged obligation of the company as if it had not been dissolved. Further the directors of the company are required to furnish an affidavit to the Registrar to the effect that the company has no assets or liabilities and has not been carrying on any business during the last year or more. Further any one director is required to furnish an indemnity bond to the effect that he would satisfy the liabilities of the company if any after the name of the company has been struck off from the Register.

Usually these proceedings conclude within three months or so.

TAKEOVER OF LISTED COMPANIES:

In order to protect the interest of small investors and to promote fairness in the capital market, the Securities & Exchange Board of India (SEBI) has framed Regulations providing for acquisition and takeover of shares (commonly called the Takeover Code). The Code has the following significant features:

No person can acquire shares in a listed company which would take his holding upto 15% or beyond without first making a public announcement to the shareholders of the company and an open offer to them, to acquire their shares to the extent of 20% of voting rights at the “offer price” (as finally approved by SEBI). In other words, a person wishing to acquire upto 15% or more shares of the company must make a public offer for upto a minimum of 20 percent of the voting rights in the Target Company.

Once the acquirer has obtained upto 15% or more shares in the company, the acquirer may resort to “creeping acquisition” of upto 5 percent of the voting rights in the Company per financial year, without making any public offer. This way the acquirer can consolidate his shareholding in the Company upto a total of 55%. Beyond 55%, the requirement of making an open offer again comes into play.

However any inter se transfer of shares amongst the promoters / joint venture partners in the company would not attract the provisions of the Code.

Failure to comply with the Code entails negation of the transaction and also penal liability.

CORPORATE GOVERNANCE:

Corporate governance assumed greater significance in India post liberalization. Following a few instances of malpractices, it was felt necessary to lay greater emphasis on corporate governance to ensure transparency and encourage corporate growth. Earlier Corporate Governance was ensured through some fairly standard provisions under the Companies Act providing for inter alia minimum number of board meetings, shareholders meetings, rotation of directors etc. In 2005 the Securities Exchange Board of India (the market regulator) introduced Clause 49 in the Listing Agreement of all Public companies, wishing to list their shares in any stock exchange. Clause 49 essentially provides for the following measures:

Constitution Of Board Of Directors:

  • The Board should have a combination of executive and non-executive directors. Not less than fifty percent of the Board should comprise of non-executive directors.
  • One-third of the Board should comprise of independent directors where the Chairman of the Board is a non-executive director and half of the Board should comprise of independent directors where the Chairman is an executive director. Independent director shall mean a non-executive director who apart from receiving director’s remuneration does not have any material pecuniary relationships or transactions with the company, its promoters or directors


Audit Committee:

  • It is necessary for all listed companies to have an Audit Committee. This committee shall review the financial statements in consultation with the management.

Summary Of Related Party Transactions:

  • Where the transactions are entered with parties related to promoters, directors etc. a summary of the same is to be placed periodically before the audit committee.

Disclosures:

  • Every company is required to give a Corporate Governance report along with its annual accounts stating inter alia its strengths, opportunities, risks and concerns.

STRUCTURING OF CROSS-BORDER BUSINESS

Foreign investors have the following structuring options for entry into India:

  • Liaison Office/Representative Office
  • Branch Office
  • Project office
  • Incorporation of Company
  • Franchising

a. Liaison Office:

Liaison office basically acts as a representative and cannot carry out any commercial or industrial activity on its own. Setting up a liaison office needs prior permission of the Reserve Bank of India (RBI). A liaison office typically undertakes the following:

  • Representing the parent / group company and acting as a communication channel.
  • Marketing for the parent Company – without actually entering into any contract itself.

All expenses for establishing and running the liaison office have to be met through inward remittances. No income can be generated locally. As the liaison office is not permitted to be engaged in any commercial activity, it earns no income and is therefore not liable to pay any income tax.

b. Branch Office:

Prior approval from the RBI is required for setting up a branch office. However, Government has granted general permission to foreign companies for setting up branch offices in designated Special Economic Zones for undertaking manufacturing and service activities. Branch office can perform almost all the activities that a parent company can perform in India without the hassle of going for incorporation. Typically, the branch office carries out the following activities:

  • Entering into contracts for export / import of goods.
  • Rendering professional or consultancy services.
  • R & D
  • Promoting technical or financial collaboration.
  • Acting as buying / selling agents.
  • Rendering services or technical support.

The major advantage of a branch office is the ease of setting up and exiting. However, profits from the branch office is taxable in India and the tax is higher than that for an Indian Company. A branch office is taxed at the rate of 41.86%, whereas an Indian Company (incorporated in India) is taxed at the rate of 33%. Profits (post tax) are fully repatriable out of India.

c. Project Office:

Foreign companies can set up a Project Office for carrying out a specific project in India. Prior approval from the RBI is not required. Project offices however cannot carry out any activity other than the activity relating to the project. Like branch office, a project office is also subject to income tax at the rate of 41.86%. A foreign company may open a Project Office in India provided it has secured a contract from an Indian company to set up a project in India and the following conditions are fulfilled:

  1. the project is funded by inward remittances from abroad, or
  2. the project is funded by a bilateral or multilateral International Financing Agency, or
  3. the project has been cleared by an appropriate authority, or
  4. Indian company awarding the contract has been granted term loan through a Public Financial Institution or bank in India.

d. Incorporation Of Indian Company:

A foreigner can incorporate a wholly or partly owned company in India.

While this option affords greater freedom in operation and lesser tax liability, it entails expense in complying with the administrative procedures under the Companies Act. Also winding up (if necessary) becomes a long and cumbersome exercise. This option is advisable if the operations planned in India are large enough to justify the additional administrative burden.

A company incorporated in India (by foreigners) is liable to pay tax at the rate applicable to any other domestic company (currently 33.66%).

e. Franchising:

A foreign company can open a franchise in India. Many companies such as Mc Donald’s, Pizza Hut, Subway, Kentucky Fried Chicken have entered India through the franchising route. Franchising is contract driven i.e. through an agreement with the Indian counterpart. Prior approval of the RBI is required by the Indian partner for remitting money for acquisition of franchise in India.

Reserve Bank of India has allowed royalty payment up to 2% for exports and 1% for domestic sales on the use of foreign trade mark and brand name without any transfer of technology. Further, for use of trade mark, a company is required to obtain licence from the trade mark authorities. There is no fixed term for the grant of license and the same is dependent on the terms of license agreement entered into between the would be licensor and the licensee.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Doing Business in India Series:

The Legal Environment
Investment and Trade
Company Incorporation
Intellectual Property Rights

  1. […] Company Incorporation […]

  2. darshak3033 says

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  3. Karuna Shani says

    We have pvt ltd company. One American citizen wants join our business, with 5% to 10% share in company. Kindly advice his visa procedure and how he can join us. My email ID is Karuna_shani@yahoo.com.

  4. Tom Lonsdale says

    I’m looking to set up a manufacturing company in India. I’m wondering what the process is and if there is a minimum investment required for a foreign company or individual. Reading the article it looks like $2,500, but I was told a much larger amount.
    Thank you

  5. DK Jain says

    To Form / Incorporate a New Company in India including obtaining DIN No. of Indian or Foreign Nationals , Registering Name of Company, Change in Name of company , Obtaining Digital Signature, Printing of memorandum and all related works , Contact N.M.S. Pvt Ltd. : Mr.D.K.Jain : +91-9810092750

  6. Vinesh says

    Dear All,
    Now Company formation has become even easier for foreign citizens and companies who wish to do business in India.

    Vinesh
    Director
    Vinning Corporate Services Pvt. Ltd.

  7. prabhat kiran patro says

    we have a pvt limited company. for payment of royalty for using the brand of my HUF, instead of paying cash i want to issue share for the liability of royalty.let me suggest the procedure and tax obligatio.

    prabhat kiran patro

    1. CA. Bhavesh Savla says

      The procedure is called issuance of sweat equity. Certain conditions need to be fulfilled before you can proceed with the above.

      CA. Bhavesh Savla
      ca.bhavesh.savla@gmail.com

  8. Kas says

    We are a US corporation looking for a sale representative office in India.
    Do we have to conduct any legal filing, other registration, establishing account etc.. in india. This is going to be a very primitve step more like a market research without generating any revenue in India….
    Thank you for your prompt response. And if any help on how to represent this in US will also be helpful

  9. ANAND says

    i require a format of poa to be issued from foreign company to local representative in india for branch opening in india

  10. pankaj gupta says

    Dear Sir,

    Could you please advise on following:-

    Can an Indian Liaison office – ILO, who wants to set up a WOS in India on behalf of the parent company, pay for various expenses of ROC, RBI and other consultancy charges?

    Awiat your response please.

    Thanks and Regards

    Pankaj Gupta
    9971788441

  11. altaf hussain says

    If any foreign company wants to do their business in india they can contact with me, because i have a Roc registered company its name is “Brahmaputra marketing private limited” my contract no is 09864544250

  12. altaf hussain says

    If any foreign company wants to do their business in india they can contact with me, because i have a rpc registered company its name is “Brahmaputra marketing private limited” my contract no is 09864544250

  13. pankaj says

    we have applied for trade mark in the name of 34, chowringhee lane
    from 23 nov 2005 but still not collected my trade mark certificate
    my application no 1400997

    do i know the current status

  14. Vinod pandey says

    I am in process to incorporate a tourism company in delhi and need format of Articles of Association and Memorandum of Association of tourism company.
    Could you please send the same to me.

    Thanks

    Vinod Pandey

  15. B Viswanath says

    Dear Sir,
    I want to incorporate a private company in india. The proposed name of the company is NTCG India Pivate Limited. NTCG stands for National Tax Credit Group Company. NTCG has a parent company in USA. This proposed indian company will do only the work of NTCG parent company such as software development or data processing.

    When I approched the ROC, they are asking for NOC from the parent company.

    Can u just tell me is it necessary?
    If yes, please send me the format of the same.

  16. rakesh says

    Dear Jidesh,

    Many thanks for your great informations.
    Regarding your comments on Step Four ie. “Comment:

    It took us around 2 working days to get the stamping done. The process was however delayed since we had to get the overseas directors to sign off on the Memorandum and Articles.”
    Wether the MoA and AoA can be sent by post for overseas directors to sign or they obligatorily have to come to India and sign n duly witnessed??

  17. Jidesh Kumar says

    No, there is no restriction on a foreign company with a WOS opening its branch in India.

    Jidesh Kumar.M.D
    Managing Partner
    King, Stubb & Kasiva
    Advocates & Attorneys
    E-66, 2nd Floor, Kalkaji
    New Delhi- 110019
    India

    Ph : +91 11 – 41032969, 41318190, 41318191
    Fax: +91 11 – 41329569
    Web: http://www.ksandk.com
    E-mail: jidesh@ksandk.com

  18. Shashank says

    Can a foreign company which already has a ‘WOS” in india,open a branch office in India too?Are there any restrictions?

  19. Satish Singh says

    Dear Mr.Jidesh,
    I am a korean representative,my company wants to open a private ltd company here in india with two korean director.First of all we would like to do assembling and after few months we would like to go in manufacturing .our product cateogery is helth fitness (Massager Bed)for this first we would import the raw material from korea and then after assembleng it we would like to sell it in india.IS IT POSSIBLE TO DO RETALING?

  20. Debasis Nayak says

    Will u please do me a favour by telling me the requirements under companies act soon after the company incorporation. 

  21. M K Jos says

    Post incorporation, application for service tax, professional tax, VAT… please suggest anyone who has information who registered their compnay in Karnataka, how much does the CA’s charge for each.

  22. pankaj rana says

    we have applied for trade mark in the name of 34, chowringhee lane
    from 23 nov 2005 but still not collected my trade mark certificate
    my application no 1400997

    do i know the status now

  23. Incorporation Guru says

    The greatest advantage of forming a corporation is the liability protection it offers to its shareholders. Then a corporation does not cease to exist until it is dissolved with the state. Capital can be raised through the sale of the corporation stock.

  24. Katrina Benito says

    Dear Sir,

    I am a foreigner with a recently formed private limited tourism company in Kerala. I would like to ask the following questions:

    1. Can foreign currency be brought into the company on a unsecured loan basis from myself, one of the directors and majority shareholder of the company? if so how is this then repaid?

    2. My company wished to enter into a non financial partnership agreement with a foreign national. This will require that this person spends 1 year in India getting to know the business. Therefore, they will require a 1 year business visa. Can anyone tell me what has to be done from the company side for this person to obtain the business visa?

    Many thnaks

  25. raj says

    Dear Sir,

    I also would like to ask a question:

    does a branch of a foreign company need to get an audit done and does it have to pay any direct and indirect taxes? what about VAT?

  26. rav says

    Dear Jidesh,

    Great info. Thank you sooooo much for promt reply.

    Trakin…seem u are the right medium

    BR
    Rav

  27. jidesh kumar says

    Dear Rav,

    The answer to all your question is YES.

    Yes, there is no requirement to draft AoA
    Yes, branch offices can open rupee bank accounts
    Yes, for other activities, the form of the entity must be a Company, either Wholly Owned or Joint Venture.

    Best, Jidesh

    Jidesh Kumar.M.D
    Managing Partner
    King, Stubb & Kasiva
    Advocates & Attorneys
    E-66, 2nd Floor, Kalkaji
    New Delhi- 110019
    India

    Ph : +91 11 – 41032969, 41318190, 41318191
    Fax: +91 11 – 41329569
    Web: http://www.ksandk.com
    E-mail: jidesh@ksandk.com

    Link | March 30th, 2008 at 2:32 am

  28. rav says

    Thank you very much Mr. Jadish for your comments.Indeed very useful!

    However I need a bit of clarity to fully understand this… You said that RBI permits certain activities hence if a person wants to do any of those then he can open a branch otherwise a WOS… IS THAT THE CASE? Believe branches of foreign trading companies can open rupee bank accounts

    and If he opens branch then my question is whether he needs to draft AOA or not. My opinion is that he does not have to as the branch office (doesn’t need to be incorporated in India)and hence will not be covered by companies act!

  29. jidesh kumar says

    Trading in India – Regulations

    100 % foreign direct investment is permitted for cash & carry wholesale trading and export trading in India. In this situation, a wholly owned subsidiary is permissible.

    Opening a Branch Office in India

    Branch Offices are set up with special RBI approval. Foreign companies engaged in manufacturing and trading activities abroad are allowed to set up Branch Offices in India for the following purposes:

    Export/Import of goods

    Rendering professional or consultancy services

    Carrying out research work, in which the parent company is engaged.

    Promoting technical or financial collaborations between Indian companies and parent or overseas group company.

    Representing the parent company in India and acting as buying/selling agents in India.

    Rendering services in Information Technology and development of software in India.

    Rendering technical support to the products supplied by the parent/ group companies.

    Foreign airline/shipping company.

    A branch office is not allowed to carry out manufacturing activities on its own but is permitted to subcontract these to an Indian manufacturer. Branch Offices established with the approval of RBI, may remit outside India profit of the branch, net of applicable Indian taxes and subject to RBI guidelines Permission for setting up branch offices is granted by the Reserve Bank of India (RBI).

    Best regards,

    Jidesh

    Jidesh Kumar.M.D
    Managing Partner
    King, Stubb & Kasiva
    Advocates & Attorneys
    E-66, 2nd Floor, Kalkaji
    New Delhi- 110019
    India

    Ph : +91 11 – 41032969, 41318190, 41318191
    Fax: +91 11 – 41329569
    Web: http://www.ksandk.com
    E-mail: jidesh@ksandk.com

  30. rav says

    Quite informative!

    But what happens when a trading company wants to set up an company in India.. I mean should it come as WOS or a Branch.. believe branch is simpler and it doesnt need to be incorporated too!!

    Hence would they need to draft MOA and AOA for settinf up their branch in India…

  31. jidesh kumar says

    MCA 21 envisages electronic filing of documents and paperless administration and pertains to Registrar of Companies offices as stipulated in the Indian Companies Act, 1956 (the Act). One can get a complete understanding of the MCA 21 from the MCA portal. The key benifits envisioned by the MCA 21 are as under:

    (a) On‐line incorporation of companies
    (b) Simplified and easy mode of filing of Forms/ Returns
    (c) Registration as well as verification of charges anytime and from anywhere
    (d) Inspection of public documents of companies anytime from anywhere
    (e) Corporate‐centric approach
    (f) Building up a centralized database repository of corporates operating in India
    (g) Enhanced service level fulfillment and customer relationship building
    (h) Total transparency through eGovernance (i) Timely redressal of investor grievances (j) Availability of more time for MCA employees for qualitative analysis of corporate information

    All the ROC’s have virutally become back offices and several facilitaion centers have been set-up know as Registrar’s Front Offices (RFOs).

    Armed with this knowledge, I proceeded to incorporating the company. For MCA21, the following four types of users are identified as users of Digital Signature Certificates (DSCs).
    (a) MCA (government) employees ; b) Professionals (Chartered Accountants, Company Secretaries, Cost accountants ) who interact with MCA and companies in the context of the Companies Act, 1956.; (c) Authorized Signatories and Directors of Companies ; (d) Representatives of Banks and Financial Institutions
    I had already solicited the help of my collegue Vinod [who works with us ] who also happens to be a CA.

    The first step – OBTAIN A DIN /Director Identification Number

    Process

    An existing Director/ person intending to become a Director are required to make an application to MCA for allotment of a unique identification, namely, Director Identification Number (DIN). It is intended to be a lifetime number. For obtaining DIN, form DIN1, requiring personal details such as name, address, and email ID of the person making an application, is required to be filled in. There is a fee of Rs. 100/ for application for allotment of DIN. On submission of of form DIN1 online, applicant shall be allotted a provisional DIN and then he/ she is required to pay the requisite fees with reference to the provisional DIN obtained. The applicant shall be required to take a printout of the submitted eForm and will have to attach proof identity, proof of residence, proof of father’s name, proof of date of birth and photograph. The applicant shall be required to sign the physical copies of the form and get these documents duly notarzed/ attested by an approved authority. The applicant shall be required to send these documents along with the proof of payment made for DIN application to MCA DIN Cell at Noida. On receipt of these documents, the application will be scrutinised and on approval, the DIN shall become active. The outcome of application (approval / rejection) shall be communicated to the user through email. Also the applicant can enquire the application status by quoting provisional DIN allotted at MCA portal.

    Comment:

    DIN is a mandatory process for foreign directors too and is required while applying for Form 1A [Name Availability Form]. A provisional DIN number is allotted instantly upon uploading the required information on the MCA portal. Eureka, it works..

    The process of obtaining a permanent DIN however takes approximately 4 weeks subject of course to documents being in order. Form DIN-2 needs to be submitted to the MCA along with the approved number of all companies of which they hold a director position. DIN-3 attested by Company Secretary is required to be submitted to the concerned Registrar of Companies (ROC).

    The Second step – DSC/ Digital Signature Certificate

    The Digital Signature Certificate (DSC) is another requirement that is now required to be accomplished. I suggest that the DSC be applied parallel alongside applying for Name Availability since the process of incorporation can be accomplished that much more faster. The DSC can be obtained from six private agencies authorized by MCA 21 (Ministry of Corporate Affairs 21st century).

    For the purpose of using the new electronic filing system under MCA 21 Project the applicant needs to obtain a Class II Digital Signature Certificate. Company directors submit the prescribed application form along with proof of identity and proof of address. Each agency has its own fee structure which ranges from INR 400 to INR 2650.

    Comment:

    The process was remarkably smooth with the process taking around 2 days, although Vinod did share with me that he had encountered problems previously. If the directors are foreign in origin, valid address proofs in the form of passport duly notarised and photographs would need to be provided. It is advisable therefore that several copies [I had around 5 copies] of the address proof of the directors be notarised since this saves valuable time. A good CA is very necessary to ensure that there are no undue delays.

    Step three – Applying for Name Availability

    Perceived to be a simple step, this can at several instances be time consuming. It is therefore advisable to go in for professional consultation before one applies for name availability. Clients often feel that their chosen names would be made available to them as a matter of course. This of course is from from reality. There are a few tips to get your name of choice.

    Firstly, caution must be exercised that the chosen name is not generic., in the sense the name must not be too general. For example Wipro technologies – while the name Wipro is just fine, the Registrar of Companies (ROC) would take objection to the usage of ‘technologies’. This is because the ROC is guided by an internal circular to the effect which has come into effect post incorporation of most MNC’s who tend to have generic names.

    Secondly, a good CA would always suggest you to check informally at the ROC whether a choice of name would be available. This is quite critical to hasten the process.

    Thirdly, in case of a wholly owned subsidiary, if the choice of name bears the name of the parent entity, it is always advisable to obtain an NOC from the parent entity to the effect that it has no objection in the Indian subsidiary using the same name. This is particularly so if the parent entity is a well known name eg., Walmart

    Fourthly, it is necessary to provide six names in the order of preference. It is necessary to make an intelligent choice of names since the ROC is likely to grant the second choice if the first does not fit the bill.

    Comment:

    We were able to obtain the desired name with not much difficulty since we had done our homework of checking with the name with the ROC well in advance. Officially, the ROC accomplishes this taks in 7 days and I must say that more often than not this timeline is often exceeded. It amazes me as to how much can be accomplished with bureaucrats in India with the right connections.

    Step four -Memorandum & Articles to be stamped

    Once a name is approved, the Memorandum of Association and Articles of Association together with miscellaneous documents have to be filed within six months of the approval. In practice, if the proposed name is available the same is granted within 2 or 3 days.

    The application should be accompanied necessarily by the following: (i) Unsigned copies of the Memorandum of Association and Articles of Association. (ii) Payment receipt. Ensure that the copies submitted to the Superintendent of Stamps or to the bank for stamping are unsigned and no promoter or subscriber has written anything on it by hand. The Superintendent returns the copies, one of which is duly stamped, signed and embossed evidencing the payment of the requisite stamp duty. The rate of stamp duty varies from State to State. According to Article 10 and 39 of the Indian Stamp Act,1899, stamp duty payable on memorandum of association and articles of association for a company to be incorporated in Mumbai, Maharashtra is: AOA: Rs. 1000/- for every Rs.500,000/- capital or part thereof subject to a maximum of Rs.50,00,000.00. Stamp duty for the MOA is Rs.200.00 Once the Memorandum and the Articles of Association of the Company have been stamped, the same is required to be signed by the Promoters of the Company including commencing with the name and description, father’s name, address, occupation and the number of shares subscribed for in their own handwriting which is duly witnessed. After signing the documents are to be dated. Declaration form 1: On Rs 100 stamp paper

    Comment:

    It took us around 2 working days to get the stamping done. The process was however delayed since we had to get the overseas directors to sign off on the Memorandum and Articles.

    Final Steps – Documents to be presented to obtain the Incorporation Certificate

    After the stamping of the MOA and AOA, 3 copies along with the following documents are required to be scanned and uploaded on the MCA-21 Portal: – The stamped copies of the MOA and AOA – Copy of the Form-32 along with the consent letters of the Directors of the Company, who are appointed therein. – Form-1 – application and declaration for incorporating of a Company and printed on non judicial Stamp paper worth INR 20. – Form 18-evidencing the address proof of the Company. – Form-1A-evidencing the name approval. – Copy of challan evidencing the fee with respect to above mentioned forms. – Power of Attorney from the subscribers in favor of any person for making corrections on their behalf in the documents and papers filed for registration .This must be on nonjudicial stamp paper of INR 100. – Identification of the subscribers by way of copy of driving license, passport, voters identity or ration card. These documents, in addition to their online uploading, are also to be filed in original with the ROC. Once the documents are uploaded and confirmation of payment of fee is received from the Bank by the ROC, it processes the papers in order of their receipt. A software ensures that the queue can not be jumped by ROC. The fees paid to the Registrar for registration are scaled according to the amount of the authorized share capital of a company as stated in its memorandum.

    Comment:

    The process of issuing a certificate of incorporation normally takes seven working days. Pursuant to incorporation, TAN and other necessary registrations as required can be obtained.

    Concluding remarks

    In all the process of inorporating of a private limited company in India can be a smooth process if the right tools of approach are adopted. We took around 18 working days to obtain the certificate of incorporation. I must make a special mention that that the government has made an honest attempt to smoothen the rough edges that one encountered in incorporating a company. This is not to say that the present system is fullproof as one can still find old barks of wood at the ROC reminding one that it may take a while before things are up to speed of this digital era.

    H/P: +91 9811620150

    Jidesh Kumar.M.D
    Managing Partner
    King, Stubb & Kasiva
    Advocates & Attorneys
    E-66, 2nd Floor, Kalkaji
    New Delhi- 110019
    India

    Ph : +91 11 – 41032969, 41318190, 41318191
    Fax: +91 11 – 41329569
    Web: http://www.ksandk.com
    E-mail: jidesh@ksandk.com

  32. New franchise busine says

    Is this royalty payable on top of the tax? Would that mean the foreign logos are taxed higher than the local companies?

    1. Bhavesh K. Savla says

      Royalty is not in any way payable to the Government. It is a business transaction between two parties. For example, if you decide to open a Mc Donalds outlet, you need to pay royalty to Mc Donalds for using their name.

      CA. Bhavesh Savla
      bhavesh@cabks.in

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