Indian Company Registration

India, being one of the world's fastest-growing economies, attracts significant Foreign Direct Investment (FDI) and Private Equity capital. According to a recent report from Nomura, a Japanese brokerage firm, FDI in India reached a record high of $34.9 billion in the 2015 fiscal year, marking a substantial 61.6% increase from the previous year's $21.6 billion. With the world's second-largest population and a substantial pool of skilled IT professionals, India remains an appealing investment destination for foreign companies and individuals. In this article, we present a comprehensive guide to registering an Indian Private Limited Company and the entry strategies available to foreign nationals and foreign companies.

Overview of Entry Strategies for Foreign Companies/Foreign Nationals in India

Several entry strategies are available for foreign companies and individuals looking to invest in India:

  1. Incorporation of a Private Limited Company or Limited Company:

    Incorporating a private limited company is the quickest and easiest entry strategy for foreign nationals and companies. Foreign direct investment of up to 100% into a private limited company or limited company is permitted under the automatic route, requiring no central government permission. Therefore, forming a private limited company as a wholly owned subsidiary of a foreign company or as a joint venture is the most cost-effective, straightforward, and rapid entry strategy for foreign entities in India.

  2. Incorporation of a Limited Liability Partnership (LLP):

    Foreign nationals or citizens can also use this entry strategy, as 100% FDI in LLPs is allowed. An LLP does not have shareholders but is represented by partners, making it an ideal choice for investment vehicles and professional firms.

  3. Proprietorship Firms or Partnership Firms:

    These basic business entities are primarily used by very small businesses or unorganized players. Foreign investment in a proprietorship firm or partnership firm requires prior approval from the Reserve Bank of India (RBI), making them unsuitable for foreign companies or individuals investing in India.

  4. Registration of Branch Office, Liaison Office, or Project Office:

    Registering these offices requires RBI and/or government approval, making the process more time-consuming and costly compared to incorporating a private limited company. Additionally, foreign nationals cannot open branch offices, liaison offices, or project offices, limiting this option to foreign companies.

Foreign Direct Investment (FDI) in Private Limited Companies

Foreign Direct Investment (FDI) of up to 100% is allowed in most sectors for Indian private limited companies or limited companies. Only a few sectors require prior approval from the central government for foreign company or individual investment. These sectors include:

  • Petroleum sector (except for private sector oil refining)

  • Natural gas/LNG pipelines

  • Infrastructure companies

  • Defense and strategic industries

  • Atomic minerals

  • Print media

  • Broadcasting

  • Postal services

  • Courier services

  • Satellite establishment and operation

  • Development of integrated townships

  • Tea sector

  • Asset Reconstruction Companies

Incorporation of a Private Limited Company for Foreign Companies and Foreign Nationals

The process of incorporating an Indian Private Limited Company for foreign nationals and foreign companies involves the following steps:

  1. Management and Shareholding Structure:

    A private limited company must have a minimum of two shareholders and two directors. Shareholders can be individuals or corporate entities, while directors must be individuals. Foreign nationals are eligible to become directors of an Indian Private Limited Company.

    The board of directors must include one director who is both an Indian citizen and an Indian resident. However, there is no requirement for the Indian director to be a shareholder in the company. Therefore, most foreign companies or individuals prefer to incorporate a company in India with three directors: two foreign national directors and one Indian national director.

    The 100% shares of the Indian company can be held by a combination of foreign companies and/or foreign nationals. Indian private limited companies must have a minimum of two shareholders, making it impossible for a single corporate entity or person to hold all the shares.

  2. Obtaining Digital Signatures for Foreign National Directors:

    Digital signatures are required for filing incorporation documents and ongoing compliance documents for the company. Therefore, digital signatures must be obtained for one or more directors of the company.

    The following documents and information are required for obtaining digital signatures for foreign nationals:

    • If the foreign national resides in their native country:

      • If the native country is a signatory of the Hague Convention, proof of identity, address proof, and the photo on the digital signature certificate (DSC) application should be notarized by a public notary in that foreign country and apostilled by the competent authority of that foreign country.

      • If the native country is not a signatory of the Hague Convention, proof of identity, address proof, and the photo on the DSC application should be notarized by a public notary in that foreign country and consularized by the competent authority of that foreign country. Required documents: Passport, Application form with Photo (all attested).

    • If the foreign national resides in India:

      • The following documents should be certified by the individual's embassy:

        • Resident Permit certificate issued by the Assistant Foreigner Regional Registration Officer, an officer of the Bureau of Immigration India.

        • Passport

        • Visa

        • Application form with Photo (attested)

    • If the foreign national neither resides in India nor their native country:

      • The following documents should be certified by the local embassy of the country to which the person belongs:

        • Passport

        • Visa

        • Application form with Photo (attested)

  3. Name Approval:

    Concurrently with the digital signature application process, you can obtain name approval for the proposed company. The name must be unique and end with the words "Private Limited" as per Indian company naming conventions.

  4. Filing for Incorporation of a Private Limited Company:

    Once you receive name approval, you can file the incorporation documents with the Ministry of Corporate Affairs to establish the company. The incorporation documents include affidavits and declarations from directors, the Memorandum of Association (MOA), Articles of Association (AOA), subscriber sheet, and proof of the registered office address.

    The affidavits and declarations from directors contain specific declarations and must be notarized (for Indian and foreign directors).

  5. Subscribing to the MOA & AOA:

    By subscribing to the MOA & AOA, shareholders (foreign companies, foreign nationals, Indian companies, or Indian nationals) express their intention to become shareholders in the newly incorporated company.

    If a foreign company subscribes to the MOA & AOA of the proposed Indian company, you must submit the following documents related to the foreign entity's share subscription:

    • Board resolution of the foreign entity authorizing the investment in the Indian company's shares.

    • A copy of the certificate of incorporation of the foreign entity.

    • Copy of address proof for the foreign company.

    Upon submitting the required documents with the application for company incorporation, the Registrar will issue a Certificate of Incorporation for the Indian Private Limited Company if the submitted documents meet the acceptance criteria.

    After obtaining the incorporation certificate, the Indian company can apply for a PAN Card (Permanent Account Number) and take the necessary steps to open a bank account in India.