Business Registration in India

• Digital signature certificates for the proposed directors and subscribers, and director identification numbers where they are not already held
• Name reservation, including checking the proposed name against existing companies, registered trade marks and the naming rules before it is applied for
• Drafting the memorandum and the articles of association to reflect what the founders have actually agreed on control, transfer of shares, board seats and deadlock — not a downloaded template
• Incorporation through the integrated SPICe+ process, which carries the PAN, TAN, EPFO, ESIC, professional tax registration and the bank account opening application with it
• Where there is foreign shareholding, checking the sectoral position and the pricing guidelines before the money is remitted, and making the reporting that follows it
• The full post-incorporation set — first board meeting, appointment of the first auditor, issue of share certificates with stamp duty paid, statutory registers opened, and the declaration of commencement of business
• A written compliance calendar for the first year, handed over at closing

The articles matter more than people expect. Retrofitting founder protections later takes a shareholders’ agreement and an alteration of the articles, with a special resolution and a filing. It costs a fraction of that to get right at incorporation.

One director must be resident in India — that is, present in India for at least 182 days in the financial year. For a foreign founder this is the first practical constraint, and it is worth solving before anything is filed.

The company must declare commencement of business within 180 days of incorporation, after the subscribers have actually paid for their shares. A company that never files it can be struck off.

Timeline. Ordinarily seven to twelve working days from the point at which every document is signed and in hand. Name approval is the step that most often adds time.

• Incorporation through SPICe+, with the memorandum and articles drafted for a public company
• Board and committee structure — independent directors, audit committee, nomination and remuneration committee, and the key managerial personnel the company is required to appoint
• Conversion of an existing private company into a public company, including the alteration of the articles and the change of name
• Advice on which of the additional public-company obligations are actually triggered at the company’s size, and which are not
• Where a listing is intended, an early review of the record so that the gaps are closed before a merchant banker finds them

Do not incorporate a public company by default. A number of exemptions and relaxations available to a private company fall away, and several provisions on deposits, related party transactions and managerial remuneration apply more strictly.

Seven subscribers are required at incorporation, which in practice means arranging six additional shareholders even where the business has one real owner.

Going public is a separate exercise. Incorporating as a public company does not make a company listed and does not by itself let it raise money from the public — a public issue is governed by its own regime.

• Incorporation through SPICe+, including the nominee’s written consent and its filing
• Drafting articles suited to a single member, and the arrangements that take effect on the member’s death or incapacity
• Change of nominee, and the filings that follow a nominee’s withdrawal
• Conversion of an OPC into a private or public limited company when a second shareholder or an investor comes in
• Conversion of an existing proprietorship into an OPC, including the transfer of the business and its registrations

If you are not an Indian citizen, this is not the route. A private limited company with a second shareholder is the equivalent, and is what almost every foreign founder uses.

An OPC cannot carry on non-banking financial investment activity, including investment in the securities of other bodies corporate.

It cannot have more than one shareholder, so the first outside investment forces a conversion. If you expect to raise money within a year, incorporate a private limited company at the outset and save the step.

Its annual compliance is lighter but not light. An OPC still files financial statements and an annual return, and still has a statutory auditor.

• The Section 8 licence application, and incorporation under it
• Drafting the objects clause so that it is wide enough for what the organisation will actually do and narrow enough to be licensed
• Registration under Sections 12A and 80G of the Income-tax Act, so that the organisation is exempt and its donors get relief
• Registration under the Foreign Contribution (Regulation) Act where foreign donations are intended, and the reporting that follows
• CSR registration, so that the organisation can receive corporate social responsibility funding
• Conversion of an existing trust or society into a Section 8 company where a funder requires the company form

The licence is a real filter. The objects, the proposed activities and the credentials of the promoters are examined. It takes longer than an ordinary incorporation and it is not a formality.

Members get nothing back. No dividend, and on winding up the assets go to another organisation with similar objects, not to the members. That is the point of the form, and it should be understood before it is chosen.

Tax exemption is separate. Being a Section 8 company does not by itself make the organisation tax exempt — registration under the Income-tax Act does, and it has to be applied for.

• Name reservation and incorporation, and designated partner identification numbers
• Drafting the LLP agreement — profit sharing, contribution, management rights, admission and retirement of partners, restrictive covenants and exit — and filing it within the statutory window
• Amendment of the agreement, and the filings on admission, resignation or death of a partner
• Conversion of a partnership firm or a private company into an LLP, and of an LLP into a company
• Foreign investment into an LLP, where the sector permits it, and the reporting that follows
• Strike off of an LLP that has ceased to trade

The agreement is the whole constitution. Where the agreement is silent the statutory default applies, and the default treats all partners as equal in profits and in management regardless of what they contributed. Almost nobody actually intends that.

It must be filed within thirty days of incorporation. A late filing attracts a daily penalty that runs until it is made.

Investors will ask you to convert. If institutional funding is a realistic prospect within two years, incorporate a private limited company instead — conversion later is possible but it is a transaction in itself.

The annual filings are due whether or not the LLP traded. A dormant LLP that stops filing accumulates penalties quietly, and they are not small.

• Drafting the partnership deed — capital, profit sharing, drawings, management and authority, admission and retirement, death of a partner, restrictive covenants and dissolution
• Stamping and execution of the deed, and registration with the Registrar of Firms
• PAN, TAN, GST and the other registrations the firm needs to begin trading
• Reconstitution — admission, retirement, change in profit sharing — and the supplementary deed and filings that go with it
• Dissolution, and the settlement of accounts between the partners
• Conversion of a firm into an LLP or a company when the business outgrows the form

Register it. Registration is optional in the statute, but an unregistered firm cannot bring a suit to enforce a right arising from a contract — against a customer who has not paid, or against its own partners. That is a serious disability and it is cheap to avoid.

Liability is unlimited and joint. A creditor of the firm can proceed against any partner personally, for the whole amount, irrespective of that partner’s share. If that is not acceptable, use an LLP.

Every partner binds the firm. One partner’s contract in the ordinary course of business binds all of them. The deed should say plainly what a partner may and may not do alone.

• Drafting the trust deed — objects, powers of the trustees, appointment and removal, quorum, succession, and the application of the corpus and the income
• Stamping and registration of the deed with the Sub-Registrar, and registration with the Charity Commissioner where the State requires it
• PAN, and registration under Sections 12A and 80G of the Income-tax Act
• Registration under the Foreign Contribution (Regulation) Act, and CSR registration
• Amendment of the deed, change of trustees, and the supporting resolutions and filings
• Private and family trusts for succession, including the interaction with the family’s other holdings

The deed is nearly impossible to change later in the way a company’s articles can be changed. The powers of the trustees and the mechanism for their succession have to be right at the outset.

The applicable law depends on the State. Public charitable trusts are governed by State legislation and the procedure in Maharashtra is not the procedure in Delhi. We confirm the position for the State of registration before drafting.

Funders increasingly prefer a Section 8 company because its filings are public and its governance is visible. If institutional or corporate funding is central to the plan, weigh that before settling on a trust.

• Drafting the memorandum of association and the rules and regulations — objects, membership classes, general body and governing body, elections, quorum, accounts and dissolution
• Registration with the Registrar of Societies, at State level or for all-India operation
• PAN, and registration under Sections 12A and 80G of the Income-tax Act
• Registration under the Foreign Contribution (Regulation) Act, and CSR registration
• Annual list of the governing body, amendment of the rules, and the filings each of those requires
• Conversion into a Section 8 company where a funder or a regulator requires it

A society is democratic by design. The governing body is elected and can be voted out. Founders who want lasting control over the organisation are usually better served by a trust or a Section 8 company.

The rules on elections and quorum are where societies come apart. Most society disputes we see are about who was validly elected. Drafting these clauses carefully is the single most useful thing at registration.

For all-India registration the members subscribing to the memorandum must be drawn from more than one State. Plan the founding membership accordingly.

• Assessing eligibility against the profit record and net worth criteria, and telling you at the outset if the parent does not meet them
• The application through the authorised dealer bank, with the parent’s attested and apostilled constitutional documents and audited accounts
• Registration of the foreign company with the Registrar of Companies, and the filings that go with it
• PAN, TAN, bank account and the other registrations the office needs to operate
• The annual activity certificate from a chartered accountant, and the annual accounts of the foreign company that have to be filed
• Extension of the permission, conversion of the office into a branch office or a subsidiary, and closure with the remittance of surplus

It genuinely cannot trade. Not invoicing, not signing contracts on its own account, not taking a commission. Regulators do look at whether a liaison office has strayed into business, and the consequence is tax on the parent as a permanent establishment.

Permission is time limited and has to be extended. It is not a permanent arrangement.

The parent has to show a track record. A recently incorporated foreign company with no profit history will usually not qualify, and a subsidiary is then the practical route.

• Testing the proposed activity against what a branch office is permitted to do, before any application is made
• Eligibility assessment against the parent’s profit record and net worth, and the application through the authorised dealer bank
• Registration of the foreign company with the Registrar of Companies, and the annual filing of the parent’s accounts
• PAN, TAN, GST, bank account, and the employment-related registrations where staff are hired
• The annual activity certificate, and remittance of profits to the parent
• Closure, including the tax clearances and the repatriation of the balance

Compare the tax before you decide. A branch is taxed as a foreign company. An Indian subsidiary is taxed at the domestic rate. For a business that expects to be profitable in India, that difference usually decides the question on its own.

The parent is exposed. A branch is not a separate legal person, so the parent carries the Indian liabilities directly. A subsidiary ring-fences them.

The permitted activity list is exhaustive. If what you intend to do is not on it, the answer is a subsidiary, and it is better to establish that before an application is filed than after it is refused.

• Checking whether the project qualifies for general permission — funding by inward remittance, by a bilateral or multilateral international financing agency, by a term loan from an Indian bank or financial institution, or clearance by the appropriate authority
• The report to the authorised dealer bank, and the RBI application where general permission is not available
• Registration of the foreign company with the Registrar of Companies
• PAN, TAN, GST, bank account and the project-specific registrations
• Intermittent remittance of surplus during the project, where permitted
• Closure on completion, with the audited project accounts and the repatriation of the balance

The contract has to exist first. A project office cannot be set up in anticipation. If you are still bidding, a liaison office or a subsidiary is the route.

It is confined to that project. A second Indian contract needs its own permission; it does not simply attach to the existing office.

Plan the exit at the start. Closure requires audited project accounts and tax clearances, and it is far easier when the records have been kept for that purpose from day one.