BUSINESS BUSINESS ORGANIZATIONORGANIZATION

Indian Institute of Foreign TradeIndian Institute of Foreign Trade NEW DELHINEW DELHI

1212THTH FEBRUARY 2005 FEBRUARY 2005

bySAMEER RASTOGI

AdvocateInternational Corporate Legal Consultant

Sole Proprietorship

Partnership

Private Limited Company

Public Limited Company

Charitable Organization

Types of Business Entities

No registration required

Unlimited liability

Used for small business or by Professionals

No Separate Legal Entity

Sole Sole Proprietorship Proprietorship

• Section 11 of Companies Act, 1956No partnership consisting of more than 20 persons shall be formed

Partnership Partnership

• Indian Partnership Act, 1932Section 4 – Partnership is the relation between persons who have agreed to share profits of business carried on by all or any of them acting for all

• Unlimited Liability

• Registration not Compulsory

• Governing Act – Companies Act, 1956

Company Company

Special Features of Company

a) Company is a Separate Legal Entityb) It can sue and be sued in its own namec) The liability of the shareholders are limited to the extent of

their shareholdings d) Company is distinct from its shareholderse) It can hold property in its own name

Types of Companies in India Types of Companies in India DESCRIPTIONS PRIVATE COMPANY PUBLIC COMPANY

Definition Which by its article restricts: Numbers of members to 50 Transfer of shares Invitation of public to subscribe its debenture, shares etc. Acceptance of deposits from person other than its shareholders and directors 

Which is not * private

Governing Laws

Companies Act, 1956 Companies Act, 1956SEBI Act, 1992 and allied laws. 

Types of Companies in IndiaTypes of Companies in India DESCRIPTIONS PRIVATE COMPANY PUBLIC COMPANY

Incorporation Time

22 to 3 weeks   2 to 3 weeks

Minimum Paid up Capital

INR 1,00,000/- INR 5,00,000/-  

Maximum No. of shareholders

50 (Fifty) 

No limit

Minimum No. of Shareholders

2 (Two) 7 (Seven)  

Transferability of Shares

Restricted Freely. If company is listed then through stock exchange(s)  

Minimum No. of Directors

2 3  

Types of Companies in IndiaTypes of Companies in India DESCRIPTIONS PRIVATE COMPANY PUBLIC COMPANY

Whether a Foreigner can be Director

YYesYes

Whole Time Director (WTD) / Managing Director (WTMD): Appointment

Appointment not compulsory and No restriction on appointment  

Appointment :Not compulsory, If paid up capital < Rs. 5 Cr.Compulsory. If paid up capital => Rs.5 Crs

WTD / WTMD: Remuneration

No restriction As per schedule XIII, otherwise permission of Central Government.

Foreigner as WTM D / WTD

No restriction With the approval of Central Government  

Types of Companies in IndiaTypes of Companies in India DESCRIPTIONS PRIVATE COMPANY PUBLIC COMPANY

Loan to Director etc.

YYes With the previous approval of Central Government

Contracts with Director etc.

Yes With the consent of Board, If paid up capital of the company is (One) 1 Cr. or more, approval of Central Govt. is necessary

Loan, Investment & Guarantee by the company

No restriction Some restrictions

Charitable Charitable Organization Organization

-- TrustTrust

-- Society Society

-- Section 25 Company Section 25 Company It can do business and earn any amount of profits, It can do business and earn any amount of profits, but the distribution of profits cannot be made to but the distribution of profits cannot be made to Shareholders / trusteeShareholders / trustee

Regulatory Bodies in Regulatory Bodies in IndiaIndia

Foreign Investment Promotion Board Foreign Investment Promotion Board (FIPB)(FIPB)

Reserve Bank of India (RBI)Reserve Bank of India (RBI) Security Exchange Board of India (SEBI)Security Exchange Board of India (SEBI) Registrar of Companies (RoC)Registrar of Companies (RoC) Trade Mark Registry (TMR)Trade Mark Registry (TMR) Director General of Foreign Trade (DGFT) Director General of Foreign Trade (DGFT)

Law relating to JV & Foreign Cos. in India - FDI In Law relating to JV & Foreign Cos. in India - FDI In India India

TELECOM – 49% ( 74%)TELECOM – 49% ( 74%)

INSURANCE – 26% (Proposed 49%)INSURANCE – 26% (Proposed 49%)

POWER – 100%POWER – 100%PETROLEUM REFINING – 100%PETROLEUM REFINING – 100%DRUGS & PHARMA – 100%DRUGS & PHARMA – 100%HOTELS – 100%HOTELS – 100%ROADS – 100%ROADS – 100%

FDI in IndiaFDI in IndiaAutomatic Route for FDI is not available for

Domestic AirlinesPetroleum Sector (except for private sector oil refining)

Investing companies in Infrastructure & Services Sector Defence and Strategic Industries

Atomic MineralsPrint Media Broadcasting

Postal servicesCourier Services

Establishment and Operation of satelliteDevelopment of Integrated Township

Tea Sector

FDI is Prohibited in • Retail Trading• Atomic Energy• Lottery Business• Gambling and Betting• Housing and Real Estate business• Agriculture (excluding Floriculture, Horticulture,

Development of seeds, Animal Husbandry, Pisiculture and Cultivation of vegetables, mushrooms etc. under controlled conditions and services related to agro and allied sectors) and Plantations (Other than Tea plantations)

FDI in IndiaFDI in India

How a Foreign Company can How a Foreign Company can enter into India?enter into India?

Liaison OfficeLiaison OfficeBranch OfficeBranch OfficeProject / Site OfficeProject / Site Office Joint VentureJoint Venture100 % Wholly Owned 100 % Wholly Owned

SubsidiarySubsidiary

Liaison OfficeLiaison OfficePermitted activities for a Liaison Office in India Permitted activities for a Liaison Office in India

Representing in India the parent Representing in India the parent company/group companies.company/group companies.

Promoting export import from/to India.Promoting export import from/to India. Promoting technical / financial collaborations Promoting technical / financial collaborations

between parent / group companies and between parent / group companies and companies in India.companies in India.

Acting as a communication channel between Acting as a communication channel between the parent company and Indian companiesthe parent company and Indian companies..

   Procedure for setting up Liaison OfficeProcedure for setting up Liaison Office

Apply in Form FNC-1 in quadruplicate to RBIApply in Form FNC-1 in quadruplicate to RBI English version of the certificate of incorporation / English version of the certificate of incorporation /

registration attested by Indian Embassy / Notary public in registration attested by Indian Embassy / Notary public in the country of registration.the country of registration.

Latest balance sheet of the applicant company / firm.Latest balance sheet of the applicant company / firm. Certified photo-copy of the agency Agreement, if any, with Certified photo-copy of the agency Agreement, if any, with

parties in India.parties in India. Photo-copy of the Agreement / draft- Agreement / Photo-copy of the Agreement / draft- Agreement /

correspondence indicating the terms of appointment of correspondence indicating the terms of appointment of the proposed representative duly authenticated by the the proposed representative duly authenticated by the applicant.applicant.

Where applicable, certified photocopy of Government of Where applicable, certified photocopy of Government of India’s approval for undertaking projects in India.India’s approval for undertaking projects in India.

Where applicable, certified photocopy of the contract / Where applicable, certified photocopy of the contract / Agreement for undertaking activities / rendering services.Agreement for undertaking activities / rendering services.

Liaison OfficeLiaison Office Conditions Imposed While Granting PermissionConditions Imposed While Granting Permission

No commission / fee will be charged or any other No commission / fee will be charged or any other remuneration received by the Indian office of the foreign remuneration received by the Indian office of the foreign company for its liaison activities in India.company for its liaison activities in India.

Except the liaison work, the office will not undertake any Except the liaison work, the office will not undertake any activity of a trading, commercial or industrial nature without activity of a trading, commercial or industrial nature without the prior permission of RBIthe prior permission of RBI

The entire expenses of the Indian office will be met The entire expenses of the Indian office will be met exclusively by remittance from abroad through normal exclusively by remittance from abroad through normal banking channels. banking channels.

Branch OfficeBranch OfficePermitted activitiesPermitted activities Export/Import of goodsExport/Import of goods Rendering professional or consultancy services.Rendering professional or consultancy services. Carrying out research work, in which the parent company is Carrying out research work, in which the parent company is

engaged.engaged. Promoting technical or financial collaborations between Indian Promoting technical or financial collaborations between Indian

companies and parent or overseas group company.companies and parent or overseas group company. Representing the parent company in India and acting as Representing the parent company in India and acting as

buying/selling agent in India.buying/selling agent in India. Rendering services in Information Technology and development Rendering services in Information Technology and development

of software in India.of software in India. Rendering technical support to the products supplied by Rendering technical support to the products supplied by

parent/group companies.parent/group companies.

 Procedure for setting up Branch Office – Same as Liaison Office

Joint VenturesJoint Ventures Joint Ventures are of two typesJoint Ventures are of two typesa)a) Incorporated Joint Ventures Incorporated Joint Ventures b)b) Contractual Joint VenturesContractual Joint Ventures

a) Financial Joint Venture a) Financial Joint Venture b) Technical Joint Ventureb) Technical Joint Venture

Essentials for Joint Ventures Essentials for Joint Ventures - Name of the JVName of the JV- Shareholding PatternShareholding Pattern- Funding and Financing of JVFunding and Financing of JV- Constitution of Board of Directors, Powers of Directors, Meeting Constitution of Board of Directors, Powers of Directors, Meeting - Transfer of shares, right of refusal, buy out provisionsTransfer of shares, right of refusal, buy out provisions- Non disclosure, non competition, IPR’sNon disclosure, non competition, IPR’s- Governing laws, Dispute resolution Governing laws, Dispute resolution

Joint VenturesJoint Ventures

Verify Limit of FDI permitted in Verify Limit of FDI permitted in proposed JVproposed JV

DraftingDrafting of Moa & Aoa in of Moa & Aoa in accordance with JV Agreement accordance with JV Agreement

Incorporation of JV companyIncorporation of JV companyPrivate & Public JV Company Private & Public JV Company

100% Wholly Owned 100% Wholly Owned SubsidiarySubsidiary

Verify FDI for 100% WOS

Incorporation of WOS

Private & Public WOS