FAQ on Indian Companies

Q1. What is a Private Limited Company?

A Private Limited Company is a type of business entity in India where the ownership is limited to a specific number of shareholders (usually up to 200). It restricts the right of its members to transfer shares and prohibits inviting the public to subscribe to its shares. This structure provides limited liability to its shareholders and is a popular choice for small to medium-sized businesses.

Q2. What is a Public Limited Company?

A Public Limited Company is a company that can issue shares to the general public and is required to have a minimum of seven shareholders. The shares of a Public Limited Company are freely transferable, and it must comply with more stringent regulatory requirements compared to a Private Limited Company. It is an appropriate choice for larger businesses seeking to raise capital from the public.

Q3. Which entity is best suited?

The choice between a Private Limited Company and a Public Limited Company depends on various factors, including the size of the business, fundraising requirements, ownership structure, and compliance preferences. Small to medium-sized businesses often prefer a Private Limited Company due to its ease of operation and limited compliance requirements, while larger companies seeking capital from the public may opt for a Public Limited Company.

Q4. What is the minimum paid-up capital of a Private Limited Company?

As of my last update in September 2021, India no longer mandates a minimum paid-up capital for the incorporation of a Private Limited Company. This change was made to promote startups and ease of doing business. Therefore, you can incorporate a Private Limited Company without any minimum capital requirement.

Q5. What is the difference between authorized capital and paid-up capital?

Authorized capital refers to the maximum amount of capital that a company is authorized to raise by issuing shares to its shareholders. On the other hand, paid-up capital is the actual portion of the authorized capital that the shareholders have paid for and is currently available for the company’s operations. Paid-up capital is the amount contributed by the shareholders, while authorized capital sets the limit for potential future capital infusion.

Q6. What is the procedure in obtaining a name approval for the proposed Company?

To obtain name approval for a proposed company, you need to apply to the Ministry of Corporate Affairs (MCA) through its online portal. The name should adhere to the naming guidelines laid down by the MCA and should not be similar to existing company names. Once approved, the name will be reserved for 20 days within which you need to complete the incorporation process.

7. What is the Memorandum Of Association (MOA) and the Articles Of Association (AOA) of a company, and what is the procedure in this regard?

The Memorandum of Association (MOA) is a legal document that defines the company’s objectives, business activities, and scope of operations. The Articles of Association (AOA) outline the internal rules, regulations, and governance structure of the company. To draft the MOA and AOA, you need to engage a company secretary or a chartered accountant who will prepare these documents based on the company’s requirements and applicable laws. Once prepared, these documents must be stamped and filed with the Registrar of Companies (ROC) along with other incorporation documents.

Q8. What are the documents required to be executed for incorporation or Company Formation in India?

The following documents are typically required for company incorporation in India:
a. Identity and address proof of directors and shareholders.
b. Proof of the registered office address of the company.
c. Memorandum of Association (MOA) and Articles of Association (AOA).
d. Declaration from the directors and subscribers.
e. Payment of prescribed registration fees.
f. Any additional documents as required by the ROC.

Q9. How is the certificate of incorporation issued?

Once all the incorporation documents are submitted and verified by the Registrar of Companies (ROC), including the MOA, AOA, and other necessary forms, the ROC will issue the Certificate of Incorporation. This certificate officially establishes the existence of the company as a separate legal entity and provides the company with a unique Corporate Identity Number (CIN).

Q10. When can the newly formed company start its business operations?

After obtaining the Certificate of Incorporation, the newly formed company can start its business operations immediately. However, there are certain post-incorporation formalities that need to be completed before commencing business activities.
These formalities may include:
a. Opening a bank account in the company’s name.
b. Obtaining the Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) from the Income Tax Department.
c. Registering for Goods and Services Tax (GST), if applicable.
d. Complying with any specific industry or sector-specific regulations or licenses.
e. Appointing a company auditor.

The timeline for completing these formalities may vary, but it is essential to do so before initiating any business transactions.

Q11. How do we comply with the legal formalities when we are not stationed in India?

If you are not stationed in India but want to establish and run a company in India, you can appoint a local resident as a director or hire a registered Indian firm to act as an authorized representative. This person or entity will manage the compliance requirements and legal formalities on behalf of the company. Modern communication technologies enable remote management and coordination, which makes it feasible for foreign individuals and entities to manage their Indian operations efficiently.

Q12. What other approvals are required for a foreign investor in India?

For foreign investors in India, certain approvals may be required depending on the sector and the amount of foreign direct investment (FDI) involved. The two major authorities regulating foreign investment in India are the Reserve Bank of India (RBI) and the Foreign Investment Facilitation Portal (FIFP) under the Department for Promotion of Industry and Internal Trade (DPIIT). Common approvals include:
a. FDI Approval: Some sectors have specific FDI limits, and investments beyond those limits require government approval.
b. Automatic Route: Many sectors allow 100% FDI under the automatic route, which means no prior approval is needed.
c. Reserve Bank of India (RBI) Reporting: Certain transactions and investments require reporting to RBI after the investment has been made.

It’s crucial to research the sector-specific FDI policy and consult with us to ensure compliance with the relevant regulations.

Q13. How does a foreign company invest in India?

A foreign company can invest in India either by setting up a new company (wholly-owned subsidiary) or by forming a joint venture with an existing Indian company. The process involves the following steps:
a. Company Incorporation: The foreign company needs to incorporate a company in India following the procedures mentioned earlier. It can be either a Private Limited Company or a Public Limited Company, depending on its preference and requirements.
b. Obtaining Necessary Approvals: As mentioned earlier, some sectors require government approval for foreign investment beyond specific limits. The foreign company must ensure compliance with these regulations.
c. Capital Infusion: The foreign company can invest funds into the Indian company by way of equity shares or other permitted instruments.
d. Post-Investment Compliances: After the investment is made, the company needs to comply with various regulatory and tax-related requirements, such as obtaining PAN, TAN, GST registration, and adhering to transfer pricing regulations (if applicable).
e. Operational Setup: Once the company is incorporated and all formalities are completed, the foreign company can start its business operations in India. Investing in India requires careful planning, knowledge of the local regulations, and professional assistance to ensure a smooth and successful entry into the Indian market.