Internationalization in India: the corporate forms

L‘internationalization enterprises often involves the need to establish a company in the target country, i.e., the nation to which you intend to expand your business. 

Among the most attractive destinations for Italian companies, the’India stands out as one of the most promising and dynamic markets, ranking fifth among world economies. 

For companies that want to penetrate this market, it is essential to know the different corporate forms available that can facilitate such entry. We have already covered in another article the different corporate options provided in Indian law, offering a general overview of them. In this article, we will focus on the Private Limited Company, analyzing its requirements and the main Indian law regulations governing the operation of companies in the country.

Overview of corporate forms in India, with a special focus on the Private Limited Company

The legal tools available to Italian companies wishing to export to India Are governed exclusively by Indian law. 

The two main recognized corporate forms are the Private Limited Company (PLC) and the Public Limited Company (PLC), both of which are well-established and widely used internationally. 

The Indian regulatory framework also includes more recent options, such as the Limited Liability Partnership (LLP), which combines the advantages of a partnership with those of a limited liability company. Despite these alternatives, the Private Limited Company remains the choice of choice, especially for SMEs wishing to initiate processes of internationalization in the territory.

Main sources of corporate law in India

The main sources of corporate law in India include:

• Companies Act, 1956: The basic legislation governing the establishment and operation of companies in India.
• Indian Partnership Act, 1932: governs traditional partnerships.
• Limited Liability Partnership Act, 2008: standard limited liability partnerships (LLPs).

These laws provide the essential regulatory framework for foreign and local investors who wish to establish a company or start business operations in the nation.

What provides for a limited liability company in India

The notion of a limited liability company under Indian law is very similar to Western law, offering a asset protection to the partners. In a Private Limited Company, therefore, the liability of the partners is limited to their subscribed capital, meaning that they are not obligated to cover the company's obligations with their personal assets.

Memorandum of Association and responsibilities of members

The Memorandum of Association, i.e., the articles of incorporation of the company, may provide for forms of limited liability with a guarantee to be borne by the shareholders, such as the obligation to contribute to liquidation costs. In such cases, liability extends to liquidation costs, but not to debts incurred in the ordinary course of business.

The main types of companies available

In addition to the Private Limited Company, there are several legal forms that companies can consider to set up their business in India, especially in a context of internationalization. The main types include:

• Public Limited Company: suitable for large enterprises that need to raise capital through the issuance of shares. This legal form makes it possible to attract public investors and significantly expand operations.
• Limited Liability Partnership (LLP): a flexible solution particularly suitable for small and medium-sized enterprises. The LLP combines the benefits of a partnership with those of a limited liability company, offering protection of partners' personal assets and administrative simplifications compared to a corporation. However, it is only allowed in areas where 100% foreign direct investment (FDI) is permitted.
• Partnership: regulated by the’Indian Partnership Act, is a simple and straightforward form, characterized by easy management and direct taxation of profits. However, it has unlimited liability of partners, making it less attractive to foreign investors.
• Branch Office (BO): a representative of the parent company that can operate directly in India. However, the activities of the Branch Office must be authorized by the Reserve Bank of India (RBI) And mirror those of the parent company.
• Liaison Office (LO): a lightweight choice for companies wishing to explore the Indian market without engaging in commercial operations. It functions as a point of contact between the parent company and potential partners in India, but cannot engage in direct business activities.
• Project Office (PO): ideal for companies that need to execute specific projects in India. The PO is limited to the duration of the project and requires permission from the RBI and both registration with the Registrar of Companies (ROC)​.
• Indian Subsidiary Company: a form widely used by international groups to expand or diversify their activities in India. Subsidiaries can be set up as Private Limited Company o Public Limited Company, and offer foreign members the opportunity to hold 100% of the shares. This structure offers more autonomy than branches and facilitates capital raising.
• Joint Venture (JV): ideal for foreign companies wishing to leverage the network and experience of an Indian partner. In a JV, the resources and skills of two enterprises are combined, reducing the risks associated with market entry.

Registration with the Registrar of Companies (ROC)

All companies must be registered with the Registrar of Companies (ROC), the Indian equivalent of the commercial register. The ROC, along with the Company Law Board (CLB), deals with the approval of companies and verification of compliance with the Companies Act. 

A recent reform introduced the National Law Tribunal, a body that replaced the CLB in its oversight functions.

The Private Limited Company: a tool for the’internationalization of Italian SMEs

For Italian companies, particularly small and medium-sized enterprises (SMEs), the Private Limited Company represents the most suitable legal form. This type of company offers more streamlined procedures than the Public Limited Company, making it ideal for those wishing to enter the Indian market without facing excessive bureaucratic burdens.

Requirements for the establishment of a Private Limited Company

The minimum requirements for establishing a Private Limited Company in India are as follows:

• Minimum capital: 100,000 rupees (about 1,600 euros).
• Minimum number of members: at least two members, up to a maximum of 50.
• Minimum number of administrators: two, at least one of whom is a resident of India. 

Once these requirements are met, the company can be registered with the ROC and begin its operations in the Indian market.

The advantages of the Private Limited Company over other corporate forms

La Private Limited Company offers several advantages to Italian companies, particularly with regard to the limited liability that we have already mentioned, which protects the personal assets of the partners. In addition, the possibility of forming a company with foreign members at 100% represents a unique opportunity for those who wish to directly control the business without having to involve local partners.

Procedures for establishing a Private Limited Company

The process of establishing a Private Limited Company in India requires some basic steps:

1. Obtaining the Digital Signature Certificate (DSC): required to electronically sign registration documents. Each administrator must have an Indian digital signature. 
2. Obtaining the Director Identification Number (DIN): Each director must have a DIN, issued by the Indian Ministry of Corporate Affairs.
3. Registration with the ROC: Once the documentation is completed, the company must be registered with the ROC.
4. Certificate of Incorporation: Once the registration is approved, the company will receive the Certificate of Incorporation.
5. Request for key corporate records (GST, IEC etc..): these enable the company to be operational in the Indian market and thus conduct its business

India today represents a highly attractive destination for the strategies of internationalization Of numerous Italian companies. 

Octagona is ready to support companies from all sectors that wish to expand their business in the Indian market, offering assistance in setting up a company in the territory. 

For more information or if you have any questions, we invite you to fill out our contact form.