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India
Company formation in brief
The Companies Act of India regulates the procedure of organization of all types of public and private companies in the country. Each state in India has its own Companies Register used for the registration of the charter and memorandum of association of a future company.
The following organizational and legal forms of companies may be of practical interest for a foreign investor to establish a business in India:
• Limited company
• Branch
Limited company may be established in India as a private or public company and may be engaged in production and sales in India and abroad.
Foreigners may hold 100% shares of limited liability companies and offer public companies’ shares for subscription to all willing residents and non-residents of India.
The key differences between private and public companies are that certain the Companies Act provisions applicable to public companies are not applicable to private companies, for example:
• issuing shares of various classes with or without voting rights, etc.;
• prohibiting companies to buy back their own shares;
• restricting Management’s certain fee amount;
• restricting rights of the board of directors;
• restricting loan issue to company’s directors.
Private companies may be transformed into public companies in the following cases:
• when at least 25% of the company's paid-up capital is held by legal entities;
• when the company's turnover exceeds IR 100 million (approximately US$2’000’000);
• when the company accepts deposits from the public.
A private company may have from two to 50 shareholders. Shareholders may not offer shares to the public and transfer their shares to third parties without the other shareholders’ approval. The company must have at least 2 directors (physical persons, residents or non-residents of India). Shareholders may be directors. The minimum paid-up capital of a private company is IR 100’000 (approximately US$2’000).
Public companies may have seven shareholders or more. Public companies’ shares may be freely transferred and sold without restriction. The company must have at least 3 directors (physical persons, residents or non-residents of India). Shareholders may be directors. Public companies may issue shares only if the paid-up capital exceeds IR 20 million (approximately US$400’000).
Registration formalities for both types of companies are quite simple but time consuming (obtaining a registration certificate may take in practice several months).
A public company must prepare a share issue prospectus to be approved by the Registrar of Companies before the Certificate of Commencement of Business is issued; after that the company may start operations immediately.
A foreign company branch (Branch) may provide representative services to the head company, act as a customer for local Indian companies for further sales of goods and services in India, and carry out export-import operations in India. The Branch may not sell or produce goods and services in India on its own behalf.
The establishing of a Branch in India needs to be approved by the Reserve Bank of India.
Limited companies and subsidiaries of foreign companies pay taxes in India from all profits generated from sources in India and abroad.
Other corporate taxes in India include:
• capital gains tax to be paid depending on the period after which the company has sold its assets.
• withholding tax on dividends
• withholding tax on interest
• tax on royalty
India is not a tax heaven or offshore jurisdiction, and a concept of Indian tax exempt company (and/or India international business company (IBC), offshore company, trust, foundation etc. registration) does not exist in India as such. A company formation in India could be arranged with a professional registered agent providing incorporation, virtual office and other corporate services in India. To set up a company in India is possible by correspondence, but to open a bank account in India will, most probably, require a personal visit.
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