Steps to Get a New Company Incorporated in India
- Each of the first shareholders and directors of the new company needs to get a Permanent Identification Number (PAN) from Income Tax Department of Government of India
- Each of the first shareholders and directors of the new company needs to get Director Identification Number (DIN).
- At least one of the promoters must have a digital signature. The digital signature is to be purchased from a company in India.
- Decide the state in which the registered office of the company will be located. While it is easy for a company to change the registered office within a state, it is cumbersome and expensive to shift from one state to another.
- Decide the Authorized Capital of the proposed company.
- Decide whether the company will be a private limited company or public limited company.
- Decide the main objects of the company.
- Select, in order of preference, at least one suitable name up to a maximum of six names, indicative of the main objects of the company.
- Ensure that the name does not resemble the name of any other already registered company and also does not violate the provisions of emblems and names (Prevention of Improper Use Act, 1950) by availing the services of checking name availability on the portal.
- Apply to the concerned Registrar of Companies (RoC) to ascertain the availability of name in eForm1 A by logging in to the portal. A fee of Rs. 500/- has to be paid alongside and the digital signature of the applicant proposing the company has to be attached in the form. If proposed name is not available, the user has to apply for a fresh name on the same application.
- After the name approval the applicant can apply for registration of the new company by filing the required forms (that is Form 1, 18 and 32) within 60 days of name approval.
- Arrange for the drafting of the memorandum and articles of association by the solicitors, vetting of the same by RoC and printing of the same.
- Arrange for stamping of the memorandum and articles with the appropriate stamp duty.
- Get the Memorandum and the Articles signed by at least two subscribers in his/her own hand, his/her father’s name, occupation, address and the number of shares subscribed for and witnessed by at least one person.
- Ensure that the Memorandum and Article is dated on a date after the date of stamping.
- Login to the portal (www.mca.gov.in) and fill the following forms and attach the mandatory documents listed in the eForms as follows
o Declaration of compliance – Form-1
o Notice of situation of registered office of the company – Form-18.
o Particulars of the Director’s, Manager or Secretary – Form-32.
- Submit the above-mentioned eForms after attaching the digital signature, pay the requisite filing and registration fees and send the physical copy of Memorandum and Article of Association to the RoC.
- After processing of the Form is complete and Corporate Identity is generated, obtain Certificate of Incorporation from RoC.
A Practicing Company Secretary is the best person to get the above steps completed. The charges may vary from city to city and also based on the reputation of the Practicing Company Secretary. It is advisable to tell the Company Secretary the proposed authorized share capital, the state in which the company is proposed to be incorporated, number of first shareholders / directors and whether the proposed company will be a private limited or public limited. Based on this information, the Company Secretary will be in a position to give an offer for the total costs including fees payable to the Government, stamp duty, other expenses and his / her fees. Many Chartered Accountants also offer services in relation to incorporating a company. However, strictly speaking, this is the job of a company secretary and not of a chartered accountant.
PAN for Foreign Citizen Resident Outside India
Getting Permanent Identification Number (PAN) from Income Tax Department of Government of India is necessary before one invests in a company in India or becomes a Director in an Indian company. Getting a PAN is a simple process that any foreign citizen resident outside India can do without the need for professional help. One essentially needs two documents – one for proof of identity and one for proof of address.
The documents required are as follows:
Proof of Identity Document
- Copy of Passport or
- Other National ID attested by Indian Embassy / Consulate / High Commission / Apostille or
- Person of Indian Origin (PIO) card issued by Government of India or
- Copy of Overseas Citizen of India (OCI) card issued by Government of India
Proof of Address Document
- Copy of Passport or
- Other National ID attested* by Indian Embassy / Consulate /High Commission /Apostille or
- Bank account statement in country of residence, duly attested by Indian Embassy /High Commission / Consulate / Apostille in the country where applicant is located or
- Person of Indian Origin (PIO) card issued by Government of India or
- NRE bank account statement
- Overseas Citizen of India (OCI) card issued by Government of India
In essence, if you have a copy of your passport, you do not need anything else. The next step is to visit the website https://tin.tin.nsdl.com/pan/form49AA.html and fill the form 49AA online to apply for PAN.
Bank Accounts of Foreign Residents in Indian Rupees
There are three types of Rupee denominated accounts that a foreign citizen or entity may open with a bank in India:
A Ordinary Non-Resident Rupee (NRO) Accounts)
B Non-Resident (External) Rupee Accounts (NRE Accounts)
C Non-Resident (Non-repatriable) Rupee Deposit Scheme
Ordinary Non-Resident Rupee (NRO) Accounts
NRO account is the simplest form of bank account that any non-resident individual or entity (except from Pakistan or Bangladesh) may open with a bank in India. NRO account does not require approval or permission from Reserve Bank of India or any other authority.
Funds in the NRO account should be used for meeting bona fide expenses and transactions in Indian Rupees. The operations on the accounts do not allow making available foreign exchange to any person resident in India against reimbursement in rupees or in any other manner in India. NRO accounts may be opened / maintained in the form of current, savings, recurring or fixed deposit accounts. The accounts may be held jointly with residents and / or with non-residents.
Indian Visa for Directors and Employees
An Indian company can employ foreign citizens in India as well as outside India. No permissions are needed for this. However, the foreign citizen needs an employment visa if he / she intends to reside in India. Types of visa (relevant for business) issued by India are as follows.
Business – Up to 5 years – Multiple Documents to prove bonafide purpose (Company’s letter, etc.), proof of financial standing
Business Visa
A Business visa may be granted to a foreigner for the following purposes (relevant to this Guide):-
- Foreign nationals who wish to visit India to establish industrial/business venture or to explore possibilities to set up industrial/business venture in India.
- Foreign nationals coming to India to purchase/sell industrial products or commercial products or consumer durables.
- Foreign nationals coming to India for technical meetings/discussions, attending Board meetings or general meetings for providing business services support.
- Foreign nationals coming to India for recruitment of manpower.
- Foreign nationals who are partners in the business and/or functioning as Directors of the company.
- Foreign nationals coming to India for consultations regarding exhibitions or for participation in exhibitions, trade fairs, business fairs etc.
- Foreign buyers who come to transact business with suppliers/ potential suppliers at locations in India, to evaluate or monitor quality, give specifications, place orders, negotiate further supplies etc., relating to goods or services procured from India.
- Foreign experts/specialists on a visit of short duration in connection with an ongoing project with the objective of monitoring the progress of the work, conducting meetings with Indian customers and/or to provide technical guidance.
- Foreign nationals coming to India for pre-sales or post-sales activity not amounting to actual execution of any contract or project.
- Foreign trainees of multinational companies/corporate houses coming for in-house training in the regional hubs of the concerned company located in India.
- Foreign nationals coming as tour conductors and travel agents and / or conducting business tours of foreigners or business relating to it, etc.
Documents required for grant of business visa are as follows:
- A valid travel document and a re-entry permit, if required under the law of the country concerned.
- Proof of financial standing and expertise in the field of intended business.
- Documents/ papers pertaining to proposed business activity such as registration of the company under the Companies Act, proof of registration of the firm with the State Industries Department or the Export Promotion Council concerned or any recognized promotional body in the relevant field of industry or trade etc.
Local Taxes
Local Taxes are levied by either municipal corporations (in case of cities) or by village panchayats (in case of villages). The freedom of a municipal corporation or village panchayat is limited by the relevant Act passed by State Legislature.
Property Tax
Property tax is collected by municipal or village authorities based on the estimated rental value that a property is expected to fetch. Rates of property tax vary greatly from city to city. However, in general, the first step is to estimate the annual rental value. Most cities have elaborate norms for estimation of annual rental value based on the locality, type of construction, usage of property and the floor area of property. Property Tax is a percentage of the estimated annual value and is around 10-20% of the annual rental value. It is customary for the property owner (and not the tenant) to pay the property tax.
Water Charges
Strictly speaking, this is not a tax but a charge based on actual consumption. However, in most cities of India water charges are not collected based on water consumption since water metering is not very common. In most cities households are provided a 12 mm pipe connection and a fixed charge per household is levied. This is in the range of about Rs. 100 to Rs. 200 per month. Rates for commercial establishments and industries are much higher and are often based on actual usage.
Business Culture
India is a relationships-driven society. Everyone is connected to everyone else with whom one does business. Dealing with strangers is avoided – reasons for this are not too far to seek. With a judicial systems that is slow, expensive and unpredictable, one wants to avoid going to courts. If one is dealing with someone on whom one can exert some pressure, whether it is emotional or from relatives and friends, one is assured of some recourse if matters turn sour.
Relationships are built upon mutual trust and respect. In general, Indians prefer to have long-standing personal relationships prior to doing business. It may be a good idea to go through a third party introduction. This gives you immediate credibility. Doing business in India involves spending a lot of time building relationships with all sort of people whether in business or in government or in community or in politics.
This is strange for foreigners who come to India from Western Europe or USA. However, this does not surprise anyone who has done business in most of Africa or South America or Asia. It is not unusual for business associates to try to establish relationships that extend to families and friends. This seems strange to western mindset where business and personal life are kept separate. The dividing line in India is either non-existent or very thin.
So, if you receive a request from your Indian associate to go to a picnic together with families on the weekend, do not be surprised. Language of contracts in India is often flowery and extremely elaborate. Indian advocates and solicitors sometimes draw up such elaborate and complex contract documents that virtually no one bothers to read through the whole of it. It is not uncommon for parties to a contract to rely on the informal or email or verbal assurances that they have among themselves while the formal contract is seen as no more than a necessary evil that one would rather not touch. Indian entrepreneurs and senior managers often work for more than 10 hours a day and work on weekends too.
Calling up business associates on a Sunday or at 8 pm is not considered something extraordinary. India is a hierarchical society. Even in some large cities where due to western influence calling each other by first name has become acceptable, the hierarchical mindset remains deep rooted.
As a general rule, calling people by first name is avoidable unless the person is equivalent or lower to you in age and rank. Anyone who is older (or of higher rank) must be addressed respectfully. This is a hierarchical culture, so greet the eldest or most senior person first. The usual form of greeting does not involve shaking hands even though shaking hands is common. Men may shake hands with other men and women may shake hands with other women; however there are seldom handshakes between men and women. Indians consider it rude to say a clear ‘no’. Indians will offer you the response that they think you want to hear.
Since they do not like to give negative answers, Indians may give an affirmative answer but be deliberately vague about any specific details. This will require you to look for non-verbal cues, such as a reluctance to commit to an actual time for a meeting or an enthusiastic response. A problem that many foreigners face when dealing with Indian business houses over email etc. is the tendency of Indians to fall silent. Often, when an Indian does not wish to pursue the matter further, the tendency is to fall silent rather than close the matter with a clear ‘no’. Indians enjoy eating together. All food on the table must be shared.
The western habit of individual potions being served and each one ordering one’s own food is a strict no-no. A group orders food together. So, before ordering there is quite some discussion to ensure that everyone’s tastes are taken care of and no food is wasted. Often people make compromises only to ensure consensus in the group. For example, if everyone else in the group wants ice cream for dessert, someone who wants coffee is likely to go with the group and have ice cream. If everyone on the table is inclined to have Indian vegetarian food, it will be rude for one individual to order chicken for oneself.
Punctuality is the norm as far as business meetings are concerned. However, on social occasions, where large numbers of people are invited, it is customary to be late. It is advisable to ask others who may be invited to the same event whether it will be appropriate to be late. As a general rule, if someone is waiting for you in particular, you must not be late. On the other hand, if you are faceless part of a large crowd, it is fine to be late. Clothing in almost all business situations is conservative though it is not formal. Women, in particular, are advised to avoid dresses that expose legs or other such body parts.
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