Over the past 40 yrs., Prakash K Prakash, Chartered Accountants have been recognized as creditable service provider for setting up business in India. There are whole lot of laws, rules & regulations that have to be taken care of for setting up business in India. We follow well defined service plan supported by the partners of our firm holding rich experience which in turn helps the business enterprenuers, corporate houses, to understand different entry options available to them. Our bunch of services not only include business set up services but also post incorporation services such as maintenance of books of accounts, necessary post incorporation compliances as applicable to the business module adopted by the entrepreneur under Company Law, Foreign Exchange Management Act (FEMA) RBI Rules & Regulations, GST and under Income Tax Act, 1961 etc.
CONSTITUTION – VERTICALS AVAILABLE IN INDIA
The following types of Business entities are available in India:
Within the above framework of constitution of an entity, the foreign investor or foreign company intents to do business in India, can have following setup:
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 and the premium thereon in respect of the shares held by him. However, the liability of a Director / Manager/Officer of such a Company remains unlimited under certain circumstances. 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 and the premium thereon in respect of the shares held by him. However, the liability of a Director / Manager / Officer of such a Company remains unlimited under certain circumstances. 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.
What is Partnership Firm?
Partnership is defined as a relation between two or more persons who have agreed to share the profit /loss of the business carried on by them or any of them acting for all. The owners of a partnership business are individually known as "partner" and collectively as a "firm".
Partnership is an appropriate form of ownership for medium sized business involving limited capital. This may include small scale industries, wholesale and retail trade; small service concerns like transport agencies, real estate brokers; professional firms like Chartered Accountants, doctors' clinic, attorney or law firms etc. A partnership firm may be established by way of writing partnership agreement at appropriate value of stamp paper as may be prescribed under the Act of the state where the Registered Office of the Partnership is situated.
What is Sole Proprietorship?
A sole proprietorship is the oldest and the most common form of business in India. It is a one-man organisation where a single individual owns, manages and controls the business. Its main features are :-
However, keeping in view, various Rules & Regulations applicable to the other vertical of the business as stated above, sole proprietorship is most ideal preposition to commence business with minimum possible cost and compliances. Creation of Sole Proprietorship does not require any formal agreement or declaration under any law of our country.
Selection of constitution of business structure
The choice of constitution of 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 etc by the promoter shareholders. In any case, LLP and Private Limited Company can be considered as suitable choice unless, until the circumstances suggest otherwise.
Wholly owned 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. The controlled entity may be a company, corporation, or limited liability company and in some cases can be a government or state-owned enterprise, and such controlling entity is also known as its parent company. The reason for this distinction is that a lone company cannot be a subsidiary of any organization; only an entity representing a legal fiction as a separate entity can be a subsidiary. While individuals have the capacity to act on their own initiative, a business entity can only act through its directors, officers and employees. Contrary to popular belief, a parent company does not have to be the larger or "more powerful" entity; it is possible for the parent company to be smaller than a subsidiary, or the parent may be larger than some or all of its subsidiaries (if it has more than one). The parent and the subsidiary do not necessarily have to operate in the same locations, or operate the same businesses, but it is also possible that they could conceivably be competitors in the marketplace. Also, because a parent company and a subsidiary are separate entities, it is entirely possible for one of them to be involved in legal proceedings, bankruptcy, tax delinquency, indictment and/or under investigation, while the other is not.
The most common way that control of subsidiary is achieved through the ownership of shares in the subsidiary by the parent company. The shareholding give the parent company necessary votes to determine the composition of the Board of Directors of the subsidiary and in term 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.
A subsidiary company may be a Private Limited Company. For creation of Private Limited company click here --- how to incorporate Private Limited company.
Foreign companies engaged in manufacturing and trading activities abroad are allowed to set up Branch Office in India. A branch office is not allowed to carry out manufacturing activities on its own but is permitted to subcontract these to an Indian manufacturer. Click here – Setting up Branch Office in India by Foreign Entity
A Liaison Office (LO) functions as a representative office set up primarily to explore and understand the business and investment climate. A Liaison Office (also known as Representative Office) can undertake only liaison activities. The role of such offices is, therefore, limited to collecting information about possible market opportunities, Source of supply, providing information about the parent company and its products to the prospective Indian customers or vise versa to its vendor. Click here – How to establish a Liaison Office
Foreign Companies planning to execute specific projects in India can set up a temporary project/site offices in India for carrying out activities only relating to the project for which it has setup project office. The Government of India has now granted general permission to foreign entities to establish project offices subject to terms & conditions. Click here – How to Setting up a Project Office in India
Joint Venture Company
Joint Venture are the most preferred module of corporate entities for Doing Business in India. It is a temporary arrangement between two or more business entities to achieve specific objective. Such arrangements are also known as Joint Venture (JV). The JVs are advantageous as a risk reducing mechanism in new-market penetration, and in pooling of resource for large projects. The Company incorporated in India, even up to 100% foreign equity, are at par at domestic companies. A Joint Venture may be any of the business modules available. There are no separate laws for joint ventures in India.