Business Formation Law Firm in India
Private Limited Company
The most common legal form of a limited liability company in India is a private limited company. Foreign companies entering India to carry on their business in India choose to incorporate a private limited company, the other option being a limited liability partnership (LLP).
Salient Features of a Private Limited Company
- Limited Liability – Shareholders are liable only for the amount they have invested in the company’s shares. Hence the personal assets of the shareholders are generally protected from debts and liabilities of the company which they establish and run.
- Separate Legal Entity – A private limited company is recognized as a distinct legal entity from its shareholders. The company can own property, enter into contracts, and sue or be sued in its own name.
- Minimum and Maximum Shareholders – A minimum of two shareholders is required to form a private limited company, and the number of shareholders cannot exceed two hundred.
- Restrictions on Share Transfer – Shares in a private limited company cannot be freely transferred to the public or persons other than the existing shareholders. The company’s articles of association usually formulate the process for share transfer, which often requires approval from the board of directors of the company.
- No Public Invitation to Subscribe – A private limited company cannot invite the general public to subscribe to its shares. This means it cannot raise capital through an initial public offering (IPO) or similar mechanisms.
- Minimum Two Directors: A private limited company must have at least two directors, both of whom must be individuals and one of them must be resident in India.
- Perpetual Succession – The company continues to exist even if shareholders change or pass away.
- Use of the words “Private Limited”: The company’s name must include “Private Limited” or “Pvt. Ltd.”.
- Statutory Compliance – Private limited companies are subject to various legal and regulatory requirements under the Companies Act.
Documents required by foreigners/foreign companies to form a private limited company in India:
- Passport copy of all foreign nationals who will be involved in the incorporation process, either as subscribers to the Memorandum of Association (MoA) and Articles of Association (AoA) of the Indian company / as directors in the Indian company.
- Driver’s License or Telephone Bill or Energy Utility Bill or Bank Statement (not later than 60 days prior to the date of submission) to prove the address of the foreign national.
- Certificate of Incorporation of the foreign company duly translated into English.
- Board Resolution of the foreign parent company, which authorizes the individual to sign the incorporation papers on behalf of the foreign company and seeks to establish a subsidiary or a joint venture as the case may be in
- The Memorandum of Association (MoA) and Articles of Association (AoA) of the private limited company (under formation in India) duly signed by the subscribers to the MoA and AoA.
- All other forms/declarations required to be signed by the first shareholders/directors as may be prescribed from time to time, under the Companies Act, 2013 and the rules framed thereunder.
All documents above, when signed outside India must be notarized and further apostilled at the foreign country. If the foreign country is not a signatory to the Hague Apostille Convention, the documents must be notarized and attested at the Indian Embassy/Consulate in the foreign country. It is sufficient to notarize the documents signed by foreign companies located in the Commonwealth of Nations and further attestation at the Indian Embassy or apostil is not required.
- If the foreigner signing the above papers, chooses to travel to India for signing the papers in India, the person must hold a valid business visa. In such instances, the documents need not be notarized or apostilled/attested at the Indian Embassy as the papers are signed in India. Foreigners entering India, through other than a business visa, are not permitted to sign the papers in India.
Frequently Asked Questions:
Two. They could be individuals or legal entities.
Two. The Directors must compulsorily be individuals. They cannot be corporate bodies.
At least INR Two with each shareholder agreeing to subscribe to one rupee each. However, in practical terms to run a business more share capital is required. Typically, Rupees One lakh (INR 100,000) is kept as the share capital during incorporation which can be increased any time thereafter after incorporation.
Yes. However, the Companies Act, 2013 mandates that at least one of the directors should be resident in India. Hence if a company has only two directors who are both foreigners and both are not normally resident in India, the company has to appoint a resident Indian director as a third director.
Yes. Foreign nationals of countries sharing a land border with India are prohibited from holding the position of a director in an Indian company unless the prior approval of the Government of India is obtained.
The Board of Directors should meet at least four times in a calendar year and the minimum period between two meetings should not exceed 120 days.
The annual general meeting of the shareholders of a company must be held at least once a year, which should not be later than six months from the close of the financial year.
In addition to other items listed on its agenda in the notice calling for the holding of annual general meeting, the annual general meeting of a company must include the consideration and adoption of the audited financial statements for that particular financial year and the consideration and adoption of the Board of Directors Report and the Auditor’s report for that particular financial year.
A private limited company should file every year with the Registrar of Companies an Annual Return along with a copy of the Balance Sheet and Profit and Loss Statement. Together a Report of the Board of Directors and the Report of the Auditors should also be filed.
The standard financial year in India is 1st April till the succeeding 31st March. A private limited can opt for a different financial year other than the above for the purposes of Company law compliances. However, for the purposes of income tax filings and income tax payments the standard financial year cannot be changed.
Most of the business sectors have been thrown open for foreign participation to the extent of one hundred percent under the automatic approval route. Hence, no prior approvals are required for businesses falling under the automatic approval route. For businesses, falling under the Government approval route, prior approval is required.
Yes. The foreign investment made into the Indian company by the foreign company or foreign individual must be approved by the Reserve Bank of India under the regulations made under the Foreign Exchange Management Act, 1999, for which appropriate forms, documents and certifications, needs to be filed within the stipulated time period which is a maximum of sixty days from the date of the investment made into the Indian company’s bank account.
The company is required to file with the Registrar of Companies (RoC), the prescribed form, giving particulars about the receipt of the money received from the subscribers to the MoA and AoA towards their subscription shares, within a maximum period of 180 days from the date of incorporation of the company, failing which the company so incorporated, is liable to be struck off from the Register of Companies. The filing of the form does not result in the issuance of a commencement of business certificate, but the approval of the filing of the form is deemed to be an approval granted by the RoC for commencement of business of the company.
