Month: December 2015

Prerequisites for setting up a Company:

1. Minimum paid up share capital of Rs. 100,000 (Rs. One lacs only) for Private Limited company and 500,000 (Rs. Five Lacs Only) for Limited Company, except if require some key words e.g. India, Corporation, Bharat, Industry etc..
2. A minimum number of 2 (two) shareholders/ subscribers to Memorandum of Association for Private Limited Company and Three for Limited Company. For a company which is a wholly owned subsidiary of a Foreign Company, both the subscribers should be the bodies corporate. Any private limited company incorporated in India would be deemed to be a public company in case the following conditions are satisfied:

• It is a subsidiary of a foreign company, which if incorporated in India would qualify as a public company under the Companies Act; and

• The entire share capital of the Indian company is not held by that foreign company, whether alone or together with one or more foreign companies.

Also, the company law provisions do not enable the share capital being held in the name of individual/s as nominees of the foreign body or bodies corporate owning the share capital of the Indian private limited company. In such a scenario any private limited company incorporated in India would be deemed to be a public company, if the holding Foreign Company qualifies as a public company under the Companies Act, 1956 and it would have to comply with certain additional compliances and restrictions as are applicable to a Public Company in India.

Having two foreign companies as subscribers is necessary in order to avoid the stringent compliance requirements, which would otherwise be applicable to a public limited company. Foreign investing company would be one of the subscribers (the majority subscriber holding 99.99% shares) and some other body corporate (possibly a sister concern of foreign investing company) could be the other subscriber (it need not have a significant shareholding and may hold only .01% shares).

• Director Identification Number (“DIN”): Every director of a company is required to obtain a unique identification number called DIN from Ministry of Corporate Affairs (“MCA”).

• Digital Signature Certificate (“DSC”): The MCA, India launched an e-governance Project in the beginning of year With the implementation of this project e- filing of all the documents with the Registrar of Companies (“RoC”) has been made mandatory using digital signatures with effect from 16 September 2006. Consequently, the person authorized to sign any document under the company law would be required to obtain DSC to digitally sign the same.

 

The company incorporation is carried out in the following two steps:

Step 1 – Name approval

Submission of application for name availability

• An application is required to be submitted online in Form No. 1A to RoC to ascertain the availability of the name along with filing fee of Rs

• The application should mention at least four names upto a maximum of six 6 names, in order of preference. It is at the discretion of the RoC which of these four they choose to allot. It may be noted that the RoC usually insists that the name of any Indian company should be reflective of the main activities carried on by

• The significance and use of the word ‘(Brand name)’ should be

• Board resolution should be passed by the promoter companies considering following matters:

1. authorization of an individual (representative of Promoter Company) to:
2. allowing the usage of “Brand name” in the name of Indian company (this will be required to be stated in the board resolution of the promoter company whose name is proposed to be used in the Indian company).
3. incorporation of a company in

> sign all documents and to do all acts necessary for the incorporation;

> for subscribing to the Memorandum and Articles of Association of the proposed Indian Company; and

> sign and execute a Power of Attorney for & on behalf of the company in favor of M/s K R A & Co.

• Power of Attorney should be executed in favour of M/s K R A & to act as an authorized representative on behalf of promoters (this would be signed by the individual authorized by the company in the Board resolution).

Please note that Power of Attorney and Board Resolution would be required to be notarized and consularised in the country in which these documents are executed. However, if the country is a member of commonwealth, then there is no requirement for consularisation and the documents would only have to be notarized. Further, if the power of attorney is signed in India by the individuals authorized in the Board resolution, there will be no requirement for notarization and consularisation of the same. In such a case the copy of the passport of the individuals would have to be furnished to the RoC. The RoC may also require the individuals to be personally present in his office (this depends on the official examining the documents and it is possible that this step may not be required).

 

Approval of name by RoC

The RoC verifies the application and communicates his decision regarding the availability of the name generally by 8-10 working days. The name approval is valid for a period of 30 days and formalities regarding registration should be completed within that period.

 

Step 2 – Steps for incorporation post name approval

On receipt of name approval from RoC the following steps should be taken for the incorporation of the company:

Drafting of Memorandum of Association (“MoA”) and Articles of Association (“AoA”) of the company:

The draft MoA and AoA should be prepared. MoA and AoA should be printed, divided into paragraphs and numbered consecutively.

Stamping of MoA and AoA

The MoA and AoA should be stamped as per the Indian Stamp Act and at the notified rate as per provisions of Stamp Duty rates of that state in which Proposed Registered Office Lies.

Subscription to MoA and AoA

• The MoA and AoA should be subscribed by at least two persons in case of Private Limited Companies and Three in case of Limited

• Each subscriber should take at least 1 share and shall write opposite to his name the number of shares he

• Each subscriber should also sign and add his address, description and occupation (if any) in the presence of at least one witness who shall likewise add his address, description and occupation, if any.

• It is important to note that the details in the subscribers’ sheet are required to be filled by the subscribers in their own

• MoA and AoA should then be It should be ensured that the date mentioned on MoA and AoA is any date after the date of stamping and not before that date.

• The subscription table of MoA and AoA will then have to be notarized and consularised in the country in which these documents are executed. In case the country is a member of commonwealth, then there is no requirement for consularisation and the documents will only have to be

Stamping of Power of Attorney

Obtain the stamping on duly notarised and consularised Power of Attorney upon receipt in India, as per the Indian Stamp Act or the relevant State Act.

 

Submission of Documents

Online filing

Within 30 days from the date of intimation of name clearance by the RoC, following documents are required to be filed online with RoC:

1. Declaration of compliance in Form 1 duly signed using DSC by a person named in the AoA as a director or manager or secretary of the company.

2. Situation of the registered office of the company in Form 18.

3. Particulars of Directors, Managers and Secretary in Form 32.

4. Duly signed and stamped MoA and AoA of the

5. Power of attorney in favour of M/s K R A & Co. to act as an authorized representative on behalf of

6. RoC Registeration

All these documents are required to be digitally signed by a Proposed Director of the Company and certified by counter signature of a Practicing Chartered Accountant or a Company Secretary.

 

 

Manual Filing:

Following documents shall be further required to be submitted manually with concerned office of RoC after online filing:

1. Form 1 (Declaration of Compliance on incorporation of the company) executed on a non- judicial stamp paper of appropriate duty amount.

2. Form 18 (Notice of situation of the registered office of the company).

3. Form 32 (Particulars of the first Directors of the company).

4. Duly executed stamped copy of MoA and AoA.

5. Stamped copies of Power of Attorneys in favour of M/s K R A & Co.

6. Proof of payment of RoC registration fee e. RoC Challans.

 

Certificate of Incorporation

The RoC shall verify the documents and suggest modifications wherever required. The authorised person should duly carry out such modifications. The modified documents should be e – filed again. Thereafter, Registrar on being satisfied that all the requirements for the registration of the company as laid down under the Act and rules made there under have been duly complied with shall certify under his hand that company is incorporated and issue a certificate of incorporation to the company.

Compliance with Indian Exchange Control laws

Foreign Direct Investment (“FDI”) up to 100% is allowed under the automatic route in all activities/sectors except certain specified activities/sectors which require prior Foreign Investment Promotion Board (“FIPB”) approval. Following activities/sectors require prior FIPB approval:

• Manufacture of cigars & cigarettes of tobacco and manufactured tobacco substitutes.

• Manufacture of Electronic Aerospace and Defence Equipments of all types.

• Manufacture of items exclusively reserved for Small Scale Sector with more than 24% FDI.

• All proposals in which the foreign collaborator has an existing venture/ tie-up or technology transfer/ trademark agreement in India in the same field (not applicable to proposals for investments made by multinational financial institutions and investment made in IT sector and mining sector for same area/mineral).

• All proposals relating to acquisition of shares in an existing Indian company in the financial services sector and where SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 is attracted.

• All proposals falling outside notified sectoral policy/ caps or under sectors for which FDI is not permitted and/ or whenever any investor choses to make an application to the FIPB and not to avail of the automatic route.

• All proposals requiring an Industrial License.

FDI in sectors/activities to the extent permitted under the automatic route does not require any prior approval either by the Government or Reserve Bank of India (“RBI”). The investors are only required to undertake the following compliances with the RBI relating to the remittance of money as share capital into the Indian subsidiary:

1. Within 30 days from the receipt of the consideration, the company issuing the shares is required to submit a report to the RBI, indicating the following:

• Name and address of the foreign investor.

• Date of receipt of the funds and the rupee equivalent of the same.

• Name and address of the authorised dealer (‘banker’) through whom the funds have been received.

• Details of Government approval, if any.

 2. Within 30 days from the date of the issue of shares, the following documents are required to be submitted through AD Category – I bank, to the concerned Regional Office of RBI:

• A report in form FC-GPR.

• A certificate from the Company Secretary of the company issuing the shares, certifying that:

>all requirements of the Companies Act have been complied with;

>terms and conditions of the Government approval(s), if any, have been compiled with;

>the company is eligible to issue shares under the foreign exchange regulations; and

>the company has all the original certificates issued by the authorized dealers(bankers) in India evidencing receipt of the consideration in convertible foreign exchange.

• A certificate from the Statutory Auditors of the company issuing the shares or any Chartered Accountant indicating the manner of arriving at the issue price of the shares.

Disclosure: This is not an exhaustive Study and Present only for the General Information of the intended user only.

 

Liaison Office:

Companies Incorporated Outside India can establish their Liaison Offices in India.

• Opening up of a Liaison Office (Also known as Representative Office) Require Prior Approval of Reserve Bank of India (RBI). Initial Permission was granted for Three Years which could be subsequently extend by the

• A Liaison office can not enter into any commercial or business activity in India and can undertake only Liaison and related activities on behalf of its parent company Like:

1. Representing the parent/ group companies in
2. To Act as the channel of Communication between its Head Office and Parties in India.
3. Collecting and/ or providing business
4. Promoting export/ import from/ to
5. Promoting Technical/ financial collaborations between parent/ group companies and Indian companies.

• Expenses of Liaison office are to be met entirely by inward remittances from the head
• As Liaison office is not allowed to undertake any profit making activities hence not liable to Income Tax.

• Liaison office is required to submit annual activity report from its   Chartered Accountant/ CPA to RBI to ensure that it has undertaken only those activities that have been permitted by the RBI.

• A Liaison office is required to register itself with the Registrar of Companies (ROC) and to comply with certain procedural formalities, as prescribed under the Companies Act 1956.

• Foreign Insurance Companies can establish liaison offices in India after obtaining necessary approval from the Insurance Regulatory and Development Authority of India.

• Liaison Office has advantages like easy operations, less formalities and simple closer procedure. Operations of a Liaison office are limited to collection of market information on behalf of the company and providing information about the company and its products to existing/ potential customers.

• It takes 6-8 weeks to obtain all these approvals after receiving of all the necessary documents.

 

 

Branch Offices:

• Companies incorporated outside India and engaged in manufacturing or trading activities are allowed to set up a branch office in India with specific approval from Reserve Bank of India to undertake the permitted activities only.
• Branch   Offices   are   permitted   to   represent   parent/   group   companies and undertake the following activities:

1. Export/ Import of goods. Procurement of Goods for export and sale of goods after import are allowed only on wholesale basis.
2. Rendering of Professional or consultancy services.
3. Carrying out of research work in the areas in which the parent company is engaged.
4. Promoting technical and financial collaborations between Indian Companies and Parent Group Companies.
5. To act as buying/ selling agent in India.
6. Rendering of IT and Software Development Services in India.
7. Rendering Technical Support to the products supplied by the parent/ group companies in India.

• Branches are not allowed to undertake retail trading activities in India of any nature. A Branch office can not carry out any manufacturing and processing activities in India.

• Branch Office is required to register itself with the Registrar of Companies and to comply with certain procedural formalities.

• Profits earned by the branches can be freely remitted to Head Office subject to payment of applicable taxes.
• Branch Offices are required to submit annual activity report from its CA/CPA to RBI.
• For income tax purposes branch is treated as extension of Foreign Company and on income attributable to business in India is taxable as same of a Foreign Company.
• Transactions between Branch and Head Office are subject to Transfer Pricing Regulations.
• Branch Office also has advantages like easy operations, less formalities & simple Exit Procedure. However its operations are restricted and may not provide flexibility in terms of expansion and diversification.
• Formation Time: 6 to 8 weeks.

 

Wholly Owned Subsidiary/Joint Venture

• Foreign entity may set up subsidiary companies in India which can be private or public limited, with or without limited liability.
• In India companies are incorporated and regulated under the provisions of the companies Act, 1956 and are subjected to certain procedural formalities under the Act.

• The liability of the members can be limited by shares or guarantee. In the former, the personal liability of member is limited to the amount unpaid on their shares while in the latter; it is limited by a pre-decided amount. For companies with unlimited liability, the liability of its members is unlimited.

• Subsidiaries can either be wholly owned or in joint venture with some Indian partner, as per RBI (FDI) rules. Except in few sectors where foreign direct investment cap is applicable, foreign entity can have 100% subsidiary.

• It can undertake all types of business activities, as may be permitted by its charter, which may include marketing, manufacturing, providing services, etc.

• No RBI approval is needed where 100% direct investment is permissible.
• It is treated as domestic company under Indian tax law and is eligible for all the tax deductions and benefits as provided to any other Indian company.
• Individual director are required to obtain DIN (Director Unique Identification Number) from the Ministry of Company Affairs.
• Funding can be in the form of share capital, loans and business operations.

• Formation time: 3-4 weeks after receipt of the relevant information.

 

General Provisions:

• Partnership and proprietary concerns set up abroad are not allowed to open branch or liaison offices in India.
• Indian/domestic companies and foreign companies having offices in India are regulated under the companies Act, 1956. The law requires such entities to file their papers/forms/documents electronically. The directors or the authorized representatives, as the case may be, are required to obtain their digital signature to sign and file e-forms.

• Unlike subsidiaries others have simple exit route.
• Foreign entities are required to appoint their representatives in India to receive notices and other communications from the government and other agencies.
• Subsidiaries enjoy greater flexibility and operational freedom.
• Branch, liaison and project offices are allowed to open non-interest bearing current account in India.
• Transfer   of   assets   by   branch/liaison   offices   to   subsidiaries   or   other liaison/branch offices are allowed subject to RBI prior approval.

• Inter project transfer of funds are allowed, subject to the rules.

 

Direct Taxes in General

General

• Union Government of India charges two types of taxes direct and indirect. There are few types of taxes which are the subject matter of State Government and are not material in nature.
• Direct Taxes are charged on the income or wealth and profits.
• Indirect Taxes are charged by Union Government on imports/production/sales/services. These are not items of expense but added to the cost of production and recovered from the customers.
• Indian tax (financial) year starts from 1st April and ends on 31st March of the subsequent year. All tax assesses are required to follow financial year as their tax year but may have different accounting year.
• All tax assesses are required to obtain unique tax identification number, called Permanent Account Number (PAN).
• All resident corporate tax assesses are supposed to file their tax returns by 31st September of every year even in the event of loss. Non-resident corporate are also required to file tax returns if they have business entity or office in India or have income from any Indian source, asset, business, etc.
• Tax rates in India are on the reducing trend.

 

Corporate Tax

• It is charged on the net annual total taxable income which is computed under the provision of Income Tax Act, 1961. Depreciation is allowed as an expense at specified rates on tangible and intangible assets.
• Losses can be carried forward for set-off. Unabsorbed depreciation can be carried forward for set-off for indefinite period.
• Subsidiary of a foreign entity is treated as domestic company enjoys minimum corporate tax rates and all other tax exemptions and deductions like any Indian company.
• Branch/project offices are charged to tax on the profits attributable to it and is treated as an extension of a foreign company and taxed accordingly.

 

Minimum Alteration Tax (MAT)

• It is an extension of Corporate/ Income It intends to bring into tax net, the companies showing profits in their accounts but paying nil or little tax.
• It is levied if tax liability under the Income Tax Act (taxable profit x applicable tax rates) is lower than 10% of the book profits.

• Taxable profits means profits as computed under the Income tax Act after granting all eligible deductions and exemptions. Book profits mean (after few adjustments) as per accounts.

• Scheme of tax credit (MAT minus normal tax) is applicable in India as per the rules.

 

Dividend Distribution Tax (DDT)

• It is levied on the amount paid, declared or distributed as dividend by a domestic It is not payable by Branch or Project office.
• Once   domestic   company   has   paid   DDT,   dividend   received   by the shareholders is totally tax free.

 

Wealth Tax

• Wealth tax is payable on the market value of certain assets (basically guest house, motor cars, Boats, aircraft, jewellery, urban land ).
• Payable @1% (no surcharge and education cess) of the amount by which net wealth exceeds 3 Million INR.

• While computing net wealth, debts owned in connection with taxable assets are reduced.

 

Registrations Required:

Permanent Account Number (PAN): Income tax laws requires every assessee to apply and obtain PAN which is a unique tax identification number.

Tax Deduction Account Number (TAN): India has tax deduction at source and withholding rules. Every Company, branch and Liaison office while making payments/ expenses is required to deduct tax and deposit it with the Govt. It is a unique tax identification number for withholding purposes.

Service Tax Code (STC): It is a PAN based service tax code which every company providing taxable services is required to obtain.

Value Added Tax (VAT): The entity is also required to get itself with the VAT Authorities having jurisdiction of premises from where company is making sale.

Import Export Number (IEC): This unique number is require before entering into any import or export transactions.

Shop and Establishment Act: In most part of the country all assesses engaged in commercial activities need to register themselves to open/ operate from a office.