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Internationalization in India: Corporate Forms

Internationalization in India: Corporate Forms

L'internationalization of the companies often involves the need to set up a company in the target country, i.e. the nation to which you intend to expand your business. 

Among the most interesting destinations for Italian companies, theIndia It stands out as one of the most promising and dynamic markets, ranking fifth among the world economies. 

For companies that want to enter this market, it is essential to know the different corporate forms available that can facilitate such entry. We have already discussed the different forms in another article corporate options provided for under Indian law, providing a general overview of them. In this article, we will focus on the Private Limited Company, analyzing its requirements and the major Indian law regulations that govern the functioning of companies in the country.

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

The legal instruments available to Italian companies that intend 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 consolidated and widely used internationally. 

The Indian regulatory framework also includes newer 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 that intend to start processes of internationalization in the territory.

Open Company India

 

Major Sources of Company Law in India

The major sources of company law in India include:

  • Companies Act, 1956: the basic legislation that governs the incorporation and functioning of companies in India.
  • Indian Partnership Act, 1932: regulates traditional partnerships.
  • Limited Liability Partnership Act, 2008: regulates 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 country.

What does a private limited company in India involve?

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

Memorandum of Association and Members' Responsibilities

The Memorandum of Association, or the company's articles of association, may provide for forms of limited liability with a guarantee for the members, such as the obligation to contribute to liquidation costs. In these cases, liability extends to liquidation costs, but not to debts incurred during ordinary business activity.

The main types of companies available

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

  • Public Limited Company: suitable for large companies that need to raise capital through the issuance of shares. This legal form allows them to attract public investors and significantly expand operations.
  • Limited Liability Partnership (LLP): a flexible solution, particularly suitable for small and medium-sized businesses. The LLP combines the benefits of a partnership with those of a limited liability company, offering protection of the personal assets of the partners and administrative simplifications compared to a joint stock company. However, it is only permitted in sectors where the 100% of foreign direct investment (FDI) is permitted.
  • Partnership: regulated by theIndian Partnership Act, is a simple and direct form, characterized by easy management and direct taxation of profits. However, it presents unlimited liability of the partners, making it less attractive for foreign investors.
  • Branch Office (BO): a representation 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 reflect those of the parent company.
  • Liaison Office (LO): A lightweight option for companies that want to explore the Indian market without engaging in commercial operations. It acts as a point of contact between the parent company and potential partners in India, but cannot engage in direct commercial activities.
  • Project Office (PO): ideal for companies that need to execute specific projects in India. BIT is limited to the duration of the project and requires the authorization of the RBI and both the registration at 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 or Public Limited Company, and offer foreign shareholders the opportunity to hold 100% of the shares. This structure offers greater autonomy than branches and facilitates capital raising.
  • Joint Ventures (JV): ideal for foreign companies that wish to leverage the network and experience of an Indian partner. In a JV, the resources and skills of two companies 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 Companies Registry. The ROC, along with the Company Law Board (CLB), deals with the approval of companies and the verification of compliance with the Companies Act. 

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

Corporate Forms India

 

The Private Limited Company: a tool for theinternationalization of Italian SMEs

For Italian companies, especially 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 who want to enter the Indian market without facing excessive bureaucratic burdens.

Requirements for incorporation of a Private Limited Company

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

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

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

The advantages of the Private Limited Company over other corporate forms

There Private Limited Company offers several advantages to Italian companies, in particular with regards to the limited liability which we have already mentioned, which protects the personal assets of the partners. In addition, the possibility of establishing 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 setting up a Private Limited Company

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

  1. Obtaining the Digital Signature Certificate (DSC): Required to electronically sign the registration documents. Every director must have Indian digital signature. 
  2. Obtaining the Director Identification Number (DIN): Every director must have a DIN, issued by the Ministry of Corporate Affairs of India.
  3. Registration at 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 main company registrations (GST, IEC etc..): these allow the company to be operational on the Indian market and therefore to carry out its business

India today represents a highly attractive destination for 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 area. 

For further information or any questions, please contact us. fill out our contact form.

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