- 1. Why India?
India is one of the fastest growing economies in the world. India is among the BRIC Countries (Brazil, Russia, India and China) which are known as the emerging economies of the world. The investor friendly laws, ease of operating, vast English speaking population makes India a unique destination for setting up of business.
- 2. How can a foreign company have its place of business
A foreign company can establish its place of business in India in the following manner;
- Wholly owned subsidiary
- Joint venture
- Liaison office
- Branch office
100% subsidiary (WOS) and Joint Venture
This the most sought after route for foreign companies wishing to establish a base in India. For this an Indian company with limited liability is formed in India, whose liabilities are limited to Indian operations only. The Companies once approved are treated like other Indian companies and enjoy all the benefits of being Indian Company. Foreign Direct Investment norms (FDI) applies to WOS. Depending upon the business sector, the investments on repatriation basis are allowed under automatic route or through a prior approval by FIPB (Foreign Investment Promotion Board).
These are owned and controlled by the foreign enterprises. However the liaison offices are not allowed to earn any income and are primarily opened by foreign companies to liaise with their customers in India and for promoting export & import. No manufacturing, trading or any other commercial activity is allowed in liaison offices.
The branches are basically an extended arm of the foreign company and can undertake export/import of goods, consultancy, research, coordination with local buyers and sellers, provide technical support for products sold in India, development of software and airline/shipping business. However branches are not allowed to undertake manufacturing activities except research work in which parent company is engaged. These branches are treated as foreign company in India and are liable for higher Income tax. The foreign parent company is liable for all activities of the Indian branch. Due to restrictions in day-to-day operations and higher taxation, it is not a popular route. This option is generally looked at for an entry period of 6 to 12 months.
Comparative analysis of liaison office / Branch office / WOS
S.No Particulars Liasion Office Branch Office WOS 1 Keep Inventory / stocks No Yes Yes 2 Manufacturing / Assembling activities Sales to Distributors of Indian Company in No No Yes 3 Local Market No Yes Yes 4 Invoicing (Re. From India / $ from Singapore) No Yes Yes 5 Bank Account-Operations Subject to restrictions Yes Yes 6 Undertaking Repair & Service (Warranty / O/s warranty) No Yes Yes 7 Import / Export of goods No Yes Yes 8 Permission to be obtained from RBI Yes Yes No 9 Returns to be filed with ROC Yes Yes Yes
- 3. How can a Business Organization be formed?
- Partnership firm
- Limited liability partnership - LLP
- Private Limited Company
- Public Limited Company
- 4. What is the procedure for the formation of different
- Proprietorship can be started without any formalities.
- Partnership or LLP can be started by 2 or more persons by entering into an partnership agreement which lays down the terms and conditions of Partnership followed by registration with the registrar of firms
- Formation of a Company requires registration of the Name of the company with Registrar of Companies, formation of Memorandum of Association and Articles of Association, Receiving of Certificate of Incorporation.
- 5. What is “limited liability partnership” (LLP)?
LLP is a form of business model which:
- is organized and operates on the basis of an agreement.
- provides flexibility without imposing detailed legal and procedural requirements
- enables professional/technical expertise and initiative to combine with financial risk taking capacity in an innovative and efficient manner
Since LLP contains elements of both ‘a corporate structure’ as well as ‘a partnership firm structure’ LLP is called a hybrid between a company and a partnership.
The LLP structure is available in countries like United Kingdom, United States of America, various Gulf countries, Australia and Singapore. On the advice of experts who have studied LLP legislations in various countries, the LLP Act is broadly based on UK LLP Act 2000 and Singapore LLP Act 2005. Both these Acts allow creation of LLPs in a body corporate form i.e. as a separate legal entity, separate from its partners/members.
- 6. Difference between LLP & “traditional partnership
- Under “traditional partnership firm”, every partner is liable, jointly with all the other partners and also severally for all acts of the firm done while he is a partner.
- Under LLP structure, liability of the partner is limited to his agreed contribution. Further, no partner is liable on account of the independent or un-authorized acts of other partners, thus allowing individual partners to be shielded from joint liability created by another partner’s wrongful acts or misconduct.
- 7. Difference between LLP & a Company
- A basic difference between an LLP and a joint stock company lies in that the internal governance structure of a company is regulated by statute (i.e. Companies Act, 1956) whereas for an LLP it would be by a contractual agreement between partners.
- The management-ownership divide inherent in a company is not there in a limited liability partnership.
- LLP will have more flexibility as compared to a company.
- LLP will have lesser compliance requirements as compared to a company.
- 8. What is the meaning of the term "Company"?
A "Company" may be defined as a voluntary association of persons who have come together to carry on some business and sharing the profits, there from.
- 9. What is the procedure for Incorporating a Company?
(A) Procedure for incorporating a Public Limited Company:
The following procedural steps are required to be taken by the promoters for the incorporation of a Public Limited Company:
- Selecting Name of the Company and Availability Ascertained from Registrar of Companies (ROC)
- Obtaining digital signature for the applicant.
- Finalisation of objects clause
- Drafting and Printing of Memorandum of Association (MOA) and Articles of Association (AOA).
- Minimum Authorised Capital - Rupees five Lakhs
- Minimum Paid up capital – Rupees one Lakh.
- Minimum no of subscribers to be Seven.
- Signing of MOA and AOA and other incorporation documents
- Filing of Documents and Forms for Registration.
- Registration and payment of Stamp duty and Filing Fee.
- Scrutiny of Documents and Forms by Registrar.
- Issue of Certificate of Incorporation by Registrar.
(B) Procedure for incorporating a Private Limited Company having a Share Capital.
The procedure for the incorporation of a private limited company is same as that of a public limited company (as discussed above) with the following exception:
- The company must have a minimum Authorised Capital of one lakh Rupees or such higher paid-up capital as may be prescribed.
- There must be at least two subscriber
- Registration of articles of association with the Registrar of Companies is compulsory.
- 10. What are pre-incorporation contracts? Are such contracts
binding on the company even after its incorporation?
Contracts, which are made by promoters, with parties to acquire some property on right for and on behalf of a company that is yet to be formed are termed as ''pre-incorporation'' or ''preliminary'' contracts.
Section 15 of the Specific Relief Act, 1963 provides that where the promoters of a company have, before its incorporation, entered into contracts for the purposes of the company and such contracts are warranted by terms of incorporation, the contract may be specifically enforced by or against the company, if the company has accepted the contract and communicated such acceptance to the other party to the contract. The phrase "warranted by the terms of incorporation" means within the scope of the company's objects as stated in the Memorandum of Association. The contract should be for the purposes of company operations. Section 19 of the Specific Relief Act further provides that the other party can also enforce the contract if the company has adopted it after incorporation and the contract is within the terms of incorporation.
- 11. Who can be a Director of a Company?
Any person eligible to acquire DIN and is above 18 years of age can be a director.
- 12. Who can apply for DIN?
Any person who is eligible to be a Director can apply for DIN.
- 13. What is the procedure for applying for DIN?
MCA hosts a website www.mca.gov.in which has a user friendly procedure of filing the form for applying of DIN.
- 14. What are the documents required for applying for
- Identity Proof
- Address Proof
- Proof of Father’s Name
- A Director of Foreign Nationality should submit a copy of his passport as his Identity proof and any document supporting his address proof to be Notarised in his home country or by an officer of an Indian Embassy in his home Country. He need not submit Proof of his Father’s name.
- 15. Who is a Director in a Company?
The term “Directors” may be defined as individuals who, collectively as a team, known as the Board of Directors of the Company, direct, control and manage the business and affairs of the Company. Section 2(13) of the Companies Act, 1956, defines a Director as any person, occupying the position of Director, by whatever name called. They are professional men, hired by the company to direct its affairs. But, they are not the servants of the company. They are rather the officers of the company. A director is a person appointed to perform the duties and functions of director of a Company in accordance with the provisions of the Companies Act, 1956.
- Appointment of first Directors
- Appointment of Directors by Members at Annual General Meeting.
- Appointment of a person other than Retiring Director.
- Appointment of Additional Directors.
- Appointment of Directors to fill casual vacancies.
- Appointment of Alternate Director.
- Appointment of Directors by Central Government
- Appointment of Director by System of Proportional Representation.
- Appointment of Nominee Directors
- 16. How can a person become a member of a company?
A person can become a member of a company by any of the following methods:
- By subscribing to the Memorandum of Association
- By Purchase of shares from the open market
- By Transfer of shares from some other person
- By Transmission of Shares
- 17. How Shares are allotted in India?
The Board of Directors of the Company to hold its meeting and allot shares to the applicants as per entries in the register of share applications and allotment of shares, which has been prepared by the Registrar to the Issue according to the approved basis of allotment.
- 18. How to Transfer Shares in India? (For Private Companies)
- Each Column of the transfer deed should be properly and adequately filled in.
- Names of the Recognized Stock Exchange, where the instrument is dealt should be given.
- Description of the Shares, viz., equity, preference etc should be correctly given.
- Signature of the transferor should tally with the one available with the Company.
- Name and address of the ‘witness’ to the signature of the ‘transferor’ should be given and the witness also should sign the Transfer Deed.
- A duly executed Power of Attorney should be given if the Instrument has been signed and executed by or on behalf of the transferor.
- If the Instrument has been attested, the name, address and seal of the attestator of the signature of the transferor should be given.
- The transferee or the buyer should sign the Instrument.
- Share Transfer Stamps of appropriate value has to be affixed on the Instrument.
- 19. What is transmission of shares?
Transmission of shares is a process by operation of law; where under the shares registered in a company in the name of a deceased person or an insolvent person are registered in the name of his legal heirs by the company on proof of death or insolvency and on the deceased member’s shares. Transmission of shares takes place when a registered member dies or is adjudicated insolvent or lunatic by a competent Court.
- 20. What are the Statutory Registers to be maintained
by a Public and a Private Company?
- Register and index of members
- Register of Shareholders
- Register and index of Debenture holders
- Register of Charges
- Register of Loans taken
- Attendance register for Directors
- Register of investments not held in Company’s name.
- Register of fixed deposits.
- Register of securities bought back.
- Register of charges.
- Register and index of beneficial owners.
- Foreign register of members and debenture holders.
- Registers of returns.
- Books containing minutes of general meeting and of Board and other meetings.
- Books of accounts.
- Cost records.
- Register of contracts with companies/firms in which directors are interested.
- Register of Directors/Managing Directors/Managers/ Whole-time Directors/ Secretary.
- Register of directors’ shareholdings.
- Register of loans or investments made, guarantees given and security provided to other body corporate.
- Register of Transfer of Shares
- Register of Renewed and Duplicate Share Certificates.
- 21. What is Corporate Governance?
Corporate Governance deals with laws, practices and implicit rules that determine a company's ability to take informed managerial decisions, vis-a-vis its claimants, e.g. its shareholders, creditors, customers, the state and employees. It involves the following:
- transactional relationship, which involves matters relating to disclosure and authority
- long term relationships which has to deal with checks and balances, incentives of managers and communication between management and investors.
Corporate Governance denotes the following:
- Direction and control of the affairs of a company;
- Establishing a system whereby directors of companies are entrusted with responsibilities and duties in relation to the direction of a company's affair;
- A system of structuring, operating and controlling a company with specific aims of fulfilling the long-term strategy goal of the owners;
- Consideration and care for the interest of the employees
- Taking account of the needs of the environment and the local community;
- Maintaining excellent relations with both customers and suppliers;
- Maintaining proper compliance with all the applicable legal and regulatory requirements
- A system of accountability primarily directed towards the shareholder in addition to maximizing the welfare of shareholders.
- 22. What are the different kinds of meetings specified
by the Indian Companies Act, 1956?
The meetings of a Company under the Indian Companies Act, 1956 can be classified as under:
- Meetings of the Directors and their Committees
- Meetings of shareholders:
- Statutory Meeting
- Annual General Meetings
- Extraordinary General Meetings
- Class Meetings
- Meetings of Debenture/bond holders
- Meetings of the creditors otherwise than in winding up
- Meetings of Creditors and contributories in winding up.
- 23. How many Board Meetings are required to be held in
The company should have at least 1 Board meeting in each quarter and 4 Board Meeting in year.
- 24. What is the purpose of preparing Annual Reports?
In case of a Company, there exists a divorce between the share holders (owners) and the management of a company. The Board of Directors manages the affairs of a company. Mandatory disclosure through annual reports and accounts is a method of providing information to the share holders and the public about the financial position of the Company so as to enable its members to exercise a more intelligent and purposeful control thereon.
- 25. What does the Annual Report consist of?
Annual Reports and Accounts consist of balance-sheet, profit and loss account (Income and expenditure statement in case of nonprofit making Companies) directors/ governing body’s report, compliance certificate, Auditors’ report etc.
- 26. What is a Charge?
A charge is a right created by any person including a company referred to as “the borrower” on its assets and properties, present and future, in favour of a financial institution or a bank, referred to as “the lender”, which has agreed to extend financial assistance.
- 27. What is the need for creating a charge on company’s
The financial institutions/Banks do not lend their monies unless they are sure that their funds are safe and they would be repaid as per agrees repayment schedule along with payment of interest. In order to secure their loans they resort to creating right in the assets and properties of the borrowing companies, which is known as a charge on assets. This is done by executing loan agreements, hypothecations, agreements, mortgage deeds and other similar documents, which the borrowing company is required to execute in favour of the lending institution/bank etc.