Doing Business in India March 2019 Background The Government of India took the task of transforming India into a manufacturing power through the ‘Make in India’ campaign launched on September 25, 2014. A national program designed to facilitate investment, foster innovation, enhance skill development, protect intellectual property and build best-in-class manufacturing infrastructure. While several initiatives are being undertaken to provide adequate physical and social infrastructure such as industrial corridors, cluster, zones, etc. it is encouraging to note that the Government of India (GoI) has embarked on ambitious reforms focused on improving India’s performance in the World Bank’s Doing Business rankings. India is ranked 77 among 190 economies in the ease of doing business, according to the latest World Bank annual ratings. Investment climate in India has also improved considerably since the opening up of the economy in 1991. With an aim to attract and promote FDI, GoI has put in place a policy framework on FDI, which is transparent, predictable and easily comprehensible. This toolkit covers information on Setting up Business in India such as types of permitted business establishments, commencing business in India by a foreign investor, foreign company incorporation process – LO/ BO/ PO, business registration process and Central & State level compliances. Moreover, it covers the FDI related information across sectors such as how much FDI is permitted under different sectors via automatic/ Government route. The toolkit further covers the institutional and regulatory framework such as routing FDI in India, concerned administrative Ministries/ Departments, applicable regulatory framework for business establishments, governing bodies for business establishments and winding-up business. Contents Abbreviations • Related Compliances Introduction to the toolkit • Company wind-up 1. Setting up Business in India 4. Annexures • Types of permitted business establishment • Annexure I: List of Documents required for • Foreign company incorporation process- DSC, DIN LO/BO/PO & foreign bank branch • Annexure II: List of Documents required for • Registration process- OPC, Pvt. Ltd., LLP, FLLP OPC, Private Limited • Pre- commissioning and post commissioning • Annexure III: List of Documents required for of operations LLP, BIS • Annexure IV: List of Documents required for FIFP 2. Foreign Direct Investment in India • Annexure V: List of Documents required for • Permitted sectors Foreign Bank Branch • Prohibited Sectors • Annexure VI: Investment Options for • Eligible Investors & Instruments Foreigners • Compliances/Requirements • Annexure VII: Contact 3. Institutional & Regulatory framework • Regulatory set-up • Institutional set-up Abbreviations AD Authorized Dealer ECB External Commercial Borrowing AF Angel Fund FCCB Foreign Currency Convertible Bond ADR American Depository Receipts FCNR (B) Foreign Currency Non-Resident Account AIF Alternative Investment Fund FDI Foreign Direct Investment Act or the Act Companies Act, 2013 FEMA Foreign Exchange Management Act AD Authorized Dealer FPI Foreign Portfolio Investor AoA Articles of Association FIFP Foreign Investment Facilitation Portal BO Branch Office FVCI Foreign Venture Capital Investor CA Chartered Accountant FII Foreign Institutional Investor CCEA Cabinet Committee on Economic Affairs GDR Global Depository Receipts CCS Cabinet Committee on Security GoI Government of India CoI Certificate of Incorporation GST Goods and Service Tax CRC Central Registration Center InvITs Infrastructure Investment Trusts CS Company Secretary JV Joint Venture DDT Dividend Distribution Tax KYC Know Your Customer DEA Department of Economic Affairs LLP Limited Liability Partnership DPIIT Department for Promotion of Industry and Internal Trade LO Liaison Office DR Depository Receipt Max Maximum DSIM Department of Statistics and Information Management PROI Person Resident Outside India DGIT Director General of Income Tax DGP Director General of Police DIN Director Identification Number DSC Digital Signature Certificate Abbreviations Min Minimum SEBI Securities and Exchange Board of India MoA Memorandum of Association SEZ Special Economic Zone MoU Memorandum of Understanding SME Small and Medium-sized Enterprise MCA Ministry of Corporate Affairs SMS Short Message Service MSME Micro, Small and Medium Enterprise TAN Tax deduction account number NBFC Non-Banking Financial Companies TDR Transferable Development Rights NFRA National Financial Reporting Authority TDS Tax Deducted at Source NGO Non Government Organization UTI Unit Trust of India NOC No Objection Certificate VC Venture Capital NPO Non- profit organization WOS Wholly-owned Subsidiary NRE Non-Resident Entity IBC Insolvency and Bankruptcy Code NRE Account Non-Resident (External) Rupee Account NRI Non-Resident Indian NRO Account Non-Resident Ordinary Rupee Account PAN Permanent Account Number PIB Press Information Bureau PIO Person of Indian Origin PO Project Office PSU Public Sector Undertaking PGBP Profit and Gains on Business and Professions RBI Reserve Bank of India REIT Real Estate Investment Trust RoC Registrar of Companies 1 Setting up Business in India Types of permitted business establishments Commencing business in India by foreign Investor Foreign company incorporation process- LO/BO/PO Business Registration process Central level process/compliances State level process/compliances Setting up Business in India Types of permitted business establishments One Person Private Ltd Public Ltd Company Company Company Sole Proprietorship • The Companies Act 2013 A private company is a company A public company is a company • Sole proprietorship is a enables formulation of new which has the following which has the following form of business in which type of entity i.e. One Person characteristics: characteristics: one person owns all the Company (OPC). An OPC means assets of the business, in a company with only 1 person • Shareholders right to transfer • Shareholders right to transfer contrast to partnership or as a member shares is restricted shares is not restricted corporations • Shareholder can make only 1 nominee, who shall become a • Minimum number of 2 • Minimum 7 shareholders • No legal formalities are shareholder incase of death / members in company required to create a sole incapacity of original • Publishing a prospectus proprietorship other than stakeholder • Number of shareholders is become mandatory incase of an appropriate licensing to limited to 200 public issue conduct a business and • Only a natural person who is registration of business Indian Citizen &ROI shall be • An invitation to the public to • A company which is a name if it differs from that eligible to act as member & subscribe to any shares or subsidiary of a public company, sole proprietorship nominee in OPC debentures or any type of shall be deemed to be a public security is prohibited company even where such • The owner reports income/ • A person can be nominee in subsidiary continues to be loss from this business only 1 OPC • 1 Resident director mandatory private company in AoA along with personal income tax return • 1 Resident director mandatory • 1 Resident director mandatory (Min stay of 182 days) Note - Resident Director : sec 149 (3) – Every company should have at least one director who has stayed in India for a total period of not less than 182 days in the financial year (wef. 7 May 2018) Setting up Business in India Types of permitted business establishments Limited Liability Foreign Company Partnership firm Partnership • Partnership firms are • LLP is an alternative corporate • Incorporated outside but created by drafting a business entity that provides the having a place of business partnership deed among benefits of limited liability of a in India (section 2(42)) the partners. The company but allows its members partnership deed is the flexibility of organizing their • Liaison office - To registered to make a firm internal management on the basis represent parent company of a mutually-arrived agreement, as in India • Partnership firms in India is the case in a partnership firm are governed by the • Branch office- To Indian Partnership Act, • Introduced in India by way of undertake activities such 1932 Limited Liability Partnership Act, as Export, Import of 2008. LLP is a separate legal entity goods; research, • Maximum no. of partners consultancy etc. in a partnership firm can • Min 2 partners required be 20 • Project Office- Activities as • LLP shall have 2 designated per contract to execute • The Profit & Loss are partners who are individuals and at project shared in manner as least one of them shall in be agreed in the partnership Resident Partner • As per company law, a deed resident having PAN to be • Individual/ Body corporate may be appointed for receiving • Min 2 partners required a partner in LLP notices in India for foreign company Note - As per the section 7 (1) resident DP means a person who has stayed in India for at least 182 days during the immediately preceding 1 year. Setting up business in India Comparative analysis of different business establishments in India Private Company vis-à-vis Public Company vis-à-vis OPC vis-à-vis LLP Particulars Private Public OPC LLP Min Members 2 7 1 2 partners Max Members 200 Unlimited 1 No Limit Min Directors 2 3 1 2 Designated Partners Max Directors 15* 15* 15* NA Resident Director 1 Mandatory 1 Mandatory 1 Mandatory 1 Designated Partner Transfer of Ownership can be Ownership can Ownership can be Ownership can ownership