As on date, I have opened 2 Private Limited Companies in India. The first company, I set up on my own. The second company I set up for a foreigner from Dubai. The process of opening a company in India is rather easy. However, it is extremely tough to close a company. So, one needs taking caution only from the aspect that if he/she opens a company, he/she needs to be able to generate business and not close the company. To close a very small company can also cost between Rs. 6,00,000 and Rs. 10,00,000 at the very minimum and it can take between 1 years and 5 years.
A Private Limited Company in India needs at least 1 Indian Director.
The first company I opened had 2 Indian Directors. One Director was myself and the second Director was my father. Each Director were given 50% of the Shares of the Company.
The second company I opened for a foreigner from Dubai had 2 Directors – one Director was the Investor from Dubai and second one Director was myself. For a foreigner to open a company in India needs that there should be at least 1 Indian Director in the company.
Now, for a foreign Investor opening a Company in India, it is possible that the Indian Director have as minimum as 1% of the Company’s Shares. The rest can be with the foreign Investor.
The Indian Director needs to be registered with Ministry of Commercial Affairs (MCA) and needs to have a Director Identification Number (DIN) and a Digital Signature.
For a new person intending to open a company, he/she needs to apply for DIN with MCA. The process normally takes about 1 month before the DIN is allotted. After receiving the DIN, the Director needs to apply for Digital Signature. The Director needs to renew his/her Digital Signature every year. To get and renew the Digital Signature, it normally takes about Rs. 1,500 including the charges for the Chartered Accountant.
Now, for a foreigner wanting to open a company in India, he/she can get a Director in 2 ways. One is if he has a partner in India, he/she can make this person as a Director of the Company. This person can serve the company in meaning ways as well as be a Director. In this case, the Director would be full time employee and would need to be paid the full time salary.
If this is not the case, a foreigner can get an Indian Director who would be a face and not be a full time employee. There are lots of Directors registered with MCA who readily provide this service. Normally, these Directors charge between Rs. 10,000 to Rs. 25,000 per month. However, they will demand that at least one years money for the Salary equivalent be deposited in the Company’s Bank Account in India in advance. These Directors can sign all statutory papers on behalf of the company. These Directors will be Directors in other companies apart from being a Director in this company. One needs to be careful to check whether the Director is in the Blacklist of MCA. MCA website has a list of Blacklisted Directors.
The foreigner Director(s) also need to be registered with MCA and they also need to have a DIN and Digital Signature.
Once the Directors have been identified, you would need to search for the name under which the company would be registered. The Name Search facility in the MCA website needs using for the same. The intended name of the company needs being available.
After doing this research, you would need to apply to MCA for reservation of the name. There is a fees for this application. MCA normally replies within a month whether the name of the company can be given or not. Once the name has been reserved in affirmative, one needs to complete the registration of the company within one month.
The main decision for completing the registration of the company is to decide the declared Capital. I opened my first company with a Capital of Rs. 1,00,000. This is the minimum amount. The Capital declared is important as this will determine how much loan the Company can draw from Banks in case there is a need for cash. The foreigner from Dubai opened the company with a declared capital of Rs. 25,00,000.
Based on the declared Capital, the registration fees for MCA is determined. For opening a company with Rs. 1,00,000, I had to pay about Rs. 9,000 as the registration fees. This amount keeps changing year on year. However, these are available from the MCA web site.
If the Company grows, the declared Capital can be increased and the suitable fees needs paying for the same.
The company needs to have a registered address before the company can be registered.
To get a registered address, the company can have its own place or can rent a place. There are office space providers like Regus , DBS, etc. from whom one or more modules can be rented. However, there needs to be a proof of the address. MCA requires documents like Electricity Bills, Rental Agreement, No Objection Certificate (NOC) from the Owner, etc.
A 5-seater office from Regus can cost something like RS. 60,000 per month in Bangalore. The same from DBS can cost about Rs. 50,000 per month. The price also depends upon facilities availed. Examples of facilities are number of Car Parking spaces, number of 2-wheeler parking spaces, Conference Room Facilities, Internet facility, etc. Normally, Front Desk and Reception facilities are included in the rent. These service providers normally take a 3-months rent as advance.
The MCA will send inspectors to verify whether the address is genuine.
Before registering a Company, one needs to make the Memorandum of Association (MOA) and Articles of Associations (AOA).
This details what the company is all about and what it intends to do. These documents are stored in the MCA website and is available to everyone interested in the company.
It takes between 2 and 4 months for the Company to get registered. When the Company is registered, a Certificate of Incorporation is received from the Registrar of Companies (ROC). This Certificate of Incorporation is delivered as an email. The print out of the same serves all purposes.
On registration, the Company Identification Number (CIN) is provided by the ROC. It is printed on the Certificate of Incorporation.
Opening a Bank Account for the Company
Once the Certificate of Incorporation is received, the Bank account for the Company can be opened. Normally, the moment the Company is registered, the various Banks will start calling the Directors for opening the account with their Bank.
Before opening the Bank Account, the Company needs to have the “For Seal” and the “Round Seal“. These seals can be made for about Rs. 1,000 each if it is self embossing. The self embossing seals normally serve for about 3,000 impressions.
The Bank will require the minimum balance to be provided while opening the Current Account with the Bank. After opening the Bank Account with the minimum balance, the foreign investor can transfer the rest of the Declared Capital from the Foreign Bank into the Company Account.
Getting RBI Clearance for Foreign Investment
Reserve Bank of India (RBI) clearance is required once the foreign investment is received. This needs to be applied for and it normally takes 3 to 6 months to come. One the clearance is received, the same needs to be provided to the Bank.
Labour Department Registration
Once the company has been formed, it needs to be registered with the Labour Department. In Karnataka, the labour department has a website called e-Karmika. This registration normally takes between 1 and 2 months.
PAN and TAN
After receiving the Certificate of Incorporation, the application for PAN and TAN can be made. This application can be made online or in person. It takes between 15 days to 1 month to receive the PAN. It takes between 1 and 2 months to receive the TAN.
When we opened the company, GST was not in place. However, it is mandatory now. We had to apply for migration to GST. This process took about 8 months for our case.
However, we had to apply for Service Tax Registration and VAT Registration. This is not required any more.
Professional Tax Registration
After the Company has been formed, the Professional Tax Registration can be done. The Inspectors visit the company to verify the address and other details before the registration. It takes between 1 and 3 months for this process to complete.
Other Registrations we did not get done
We did not apply for Provident Fund Registration as we had less than 10 employees.
We did not apply for SEZ registration though we were developing software and intended to export.