Incorporation of Company
India is one of the fastest growing economies and a promising destination to start a new business. India has become a hotspot of business setups for NRIs.
NRIs are permitted to acquire an existing entity in India (partly or even wholly) or set up their entities in India. A Company with NRI as investor can be set up in 10-15 working days in India.
Setting up or owning a company in India can broadly be achieved with the following options:
The following types of Business entities are available in India:
- Private Limited Company
- Public Limited Company
- Limited Liability Partnership (LLP)
Within the above framework of constitution of an entity, the foreign/NRI investor intends to do business in India, can have following setup:
- Wholly owned Subsidiary Company
- Joint Venture Company
Let us understand what are these entities all about:
What is a Private Limited Company?
A Private Limited Company is a Company that restricts the right to transfer its shares i.e. the shares of Private Limited Company are not freely transferable under the Companies Act, 2013. It can have a maximum of 200 (Two Hundred) shareholders and it cannot invite public for subscription of its shares or debentures. The liability of each shareholder is limited to the extent of the unpaid amount of the shares face value The minimum number of shareholders is 2 (Two). Setting up of business via this route is generally adopted by small business concerns.
What is a Public Limited Company?
A Public Limited Company is a Company other than private limited company. In this case, there is no restriction on the maximum number of shareholders, transfer of shares and acceptance of public deposits. The liability of each shareholder is limited to the extent of the unpaid amount of the shares face value. The minimum number of shareholders is 7 (Seven).
What is Limited Liability Partnership (LLP)?
LLP is an alternative corporate business form that gives the benefits of limited liability of a company and the flexibility of a partnership. LLP is a separate legal entity, is liable to the full extent of its assets but liability of the partners is limited to their agreed contribution in the LLP.
LLP can continue its existence irrespective of changes in partners. It is capable of entering into contracts and holding property in its own name. Further, in LLP, no partner is liable on account of the independent or un-authorized actions of other partners, thus individual partners are shielded from joint liability created by another partner’s wrongful business decisions or misconduct. Mutual rights and duties of the partners within a LLP are governed by an agreement between the partners or between the partners and the LLP as the case may be. The LLP, however, is not relieved of the liability for its other obligations as a separate entity.
Selection of constitution of a business entity structure
The choice of constitution of the proposed entity to be set up depends upon various factors such as nature of business, size of business, risk factor, available financial resources and typical segment of market to be served /catered to, etc. by the promoter shareholders.
Subsidiary Company
Subsidiaries are a common feature of business houses and major businesses organize their operations in this way over the world. Subsidiary, in business matters, is an entity that is controlled by a separate entity. A subsidiary company may be a Private Limited Company.
The most common way that control of subsidiary is achieved is through the ownership of shares in the subsidiary by the parent company. The shareholding provides the parent company with sufficient voting rights to determine the composition of the Board of Directors of the subsidiary and, consequently, to control its affairs. This gives rise to the common presumption that 50% plus one share is enough to create a subsidiary. Subsidiaries are separate, distinct legal entities for the purposes of taxation and regulation.
Joint Venture Company
Joint Venture are the most preferred module of doing business in India. It is a arrangement between two or more business entities to achieve specific objective. The JVs are advantageous as a risk reducing mechanism in new-market penetration, and in pooling of resource for large projects. A Joint Venture may be any of the business modules available. There are no separate laws for joint ventures in India.
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