00:00Hi everyone, I am advocate Ashna Singh working as a legal associate with NRI Legal Services.
00:07India is currently a hotspot for attracting investors and enterprises owing to a favorable
00:13business environment and the ease of doing business. India, as we all know, is at the stage
00:20to utilize its productivity given its huge population and the majority of whom are in
00:25their youth. For the foreign investors who wants to invest their hard-earned money for
00:31small, medium or large enterprises, this video is going to be of immense help. Today's video
00:38is to enlighten the investors abroad about setting up of a legal entity in India. I will
00:45be sharing with you very important information regarding this subject, so you must watch this
00:49video till end. To begin with, the very first question which comes to or bothers our mind
00:56is that what is a legal entity? Well, in a layman language, a legal entity is a setup for running
01:04a business. Then, how the business operations can be carried out in India? Well, the same
01:11can be carried out by establishing a company. There are three types of companies, namely public
01:17limited company, private limited company, and a limited liability partnership. Depending
01:23upon the type and requirement of the business, one can decide which company is to be established.
01:29Now, let me brief you about these three companies. At first, what is a private limited company?
01:36It is a company which is owned by non-government organizations or relatively small number of shareholders
01:44or members of the company. A private limited company usually does not offer its shares at
01:51trade in the stock market. A public limited company is strictly regulated and is required
01:58to publish its true financial health to its shareholders. Then, what is a limited liability
02:04partnership? Well, a limited liability partnership is an alternate corporate business form that
02:11gives the benefit of limited liability of a company and flexibility of a partnership. It is a separate
02:18legal entity and is liable to the full extent as to its assets, but the liability of the partners
02:25is limited to the agreed contribution in the LLP. Now, I will throw some light upon the basic requirements
02:32of setting up of a legal entity in India. To name a few are share capital, board of directors, number
02:40of members,
02:40time schedule, etc. To begin with, a minimum authorized share capital for a private limited company
02:47is 1 lakh rupees and when we talk about public limited company, the share capital depends upon
02:55the need of the business. However, the minimum authorized and subscribed share capital required
03:01for the formation of public limited company is 5 lakh rupees and in case of an LLP, the minimum
03:09capital required is 1 lakh rupees. Further, the members in each legal entity varies. When it comes
03:16to the formation of a public limited company, a minimum of 7 members are mandatory. Whereas,
03:23in case of a private limited company, it is 2 members and in case of LLP, it is 2 partners
03:29required for its formation. Moving on to the board of directors. The board of directors play a very vital role
03:36in the establishment of the company. In case of a public limited company, a minimum of 3 directors
03:42are required and in case of a private limited company, it is 2 directors. Please note that
03:48it is mandatory that at least one director shall be an Indian resident. Time schedule for the completion
03:55of a setting up of a company depends upon the availability of the signed documents. However,
04:01the time for a private limited company is 30 working days and in case of an LLP, it is
04:0720 working days. I would also like to explain you here that in order to carry out business
04:13activities in India, it is not mandatory for an NRI or a foreigner to establish a company. The
04:20business activities can be carried out by establishing an office which can be in the form of a branch
04:25office, a license office or a project office. A branch office is established by a company engaged in
04:33trading and manufacturing. The role of such offices is very limited and it cannot undertake any
04:40activities which includes manufacturing. The branch office can only undertake activities as approved by
04:46by the Reserve Bank of India. Some of the approved activities are import and export, technical and
04:53financial collaborations, professional and consultancy services. Then moving on to the
04:59license office. A license office is a common practice for foreign companies seeking to enter the
05:05Indian market. The role of such office is to collect information regarding the possible Indian
05:11markets and to provide the information regarding its company and the products to the prospective
05:17Indian customers. Such an office cannot undertake any commercial activities and must only use
05:25remittances as provided by the parent company to maintain itself. Finally, a project office. A
05:32project office is an office which is established by a parent company to oversee, facilitate and maintain
05:39or to execute any activity related to a particular project. Here a question arises as to how the
05:47investment can be made in order to establish a company or an office in India. Well, there are two routes
05:54that is automatic route or the government approval route. In the former, no specific approvals are required
06:01whereas in the latter, as the name suggests, specific approvals are required. The choice of investment route depends
06:08upon the nature of the business activity and the economic sector where the proposed investment occurs.
06:15Now, moving on to the procedure of establishing a separate legal entity. The formation of the business
06:23and the running of the business in India is subject to approvals of the Reserve Bank of India and the
06:30government of India policies. The procedure commonly involves as follows. Firstly, obtaining the
06:38Director Identification Number i.e. DIN or Designated Partners Identification Number in case of LLP. Secondly, obtaining
06:47a Digital Signature Certificate. Please note that it is mandatory for all the directors of the company to obtain
06:54the same. Thirdly, Primarily Chartered Accounts Documents i.e. Articles of Association or Memorandum
07:02of Association which are to be drafted conforming to the provisions of Companies Act 2013. Such documents
07:10are to be submitted to the Registrar of Companies at the time of incorporation. Next, for the purpose of
07:16applying for incorporation, we have an integrated form that is submitted to the Registrar of Companies. It is used to
07:24apply for allotment for the allotment of DIN, reservation of a name, incorporation of a new company and
07:30obtaining a Certificate of Incorporation. Lastly, applying to the Authorised Dealer Bank as approved by the
07:37RBI with copy of necessary documents i.e. Certificate of Incorporation, Banker's Report from the country of
07:45origin, audited balance sheets of the applicant for the last 3 years and the list goes on. Further, we have
07:54a few
07:54more of the registrations which are required i.e. PAN i.e. Permanent Account Number for the legal entity,
08:02then we have TAN i.e. Tax Deduction and Collection Account Number for the entity, then we have GST i
08:09.e. Goods and
08:10Services Tax Number and finally we have IEC which stands for Imported Exporter Code Certificate. Please note that
08:18these all are mandatory registrations and are required as per the nature of the business and they are
08:25always used in various business communications and transactions. Also here let me highlight you with some
08:32of the other statutory compliances such as audit by Chartered Accountant, Tax Audits, GST Audits, IT
08:40for the legal entity.
08:46For the legal entity, the legal entity, the legal entity is other than a branch office, a liaison office or
08:50a project office.
08:52To conclude, as it can be seen that formation of the legal entity involves a lot of legal complications and
08:59legal intricacies. So it is always advisable that a legal advice should be taken before investing in India.
09:07We hope that you find this video informative and productive. In case of any query, drop us your comment below
09:13or you can
09:14email us at query at nrilegalservices.com. Please subscribe to our channels for future updates. Thank you.
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