India: Types of Company
Company Limited by Shares
This page was last updated on 13 Dec 2018.
Nature of a Company Limited by Shares
Companies limited by shares are formed under the Companies Act 1956 and may be public or private. This section is concerned only with private companies. Such a company has a minimum share capital of INR100,000, must restrict the right to transfer its shares, may not have more than 50 members and may not invite or accept subscriptions to its shares from members of the public. It is governed according to its memorandum and articles of association by a board of directors. There must be at least two members and two directors. The liability of the shareholders is limited to the amount of share capital subscribed by them.
Formation of a Company Limited by Shares
Formation of a limited company in India can be a lengthy and bureaucratic procedure. The key steps are as follows:
- Prospective directors should obtain DINs (Director's Identification Number) from the registrar of companies;
- Selection of name for the proposed company on Form 1A. Application is made to the registrar of companies, giving six alternative proposed names. The approved name remains available for six months.
- Filing of required documents with the registrar of companies: memorandum and articles of association; list of subscribers; e-Form 1; power of attorney issued by the subscribers in favour of authorised person; e-Form 18 (location of registered office; e-Form 32 (particulars of directors);
- Issuance of the certificate of incorporation, normally within seven days of filing of documents; business may then be commenced.
Once incorporation has been completed, the company can then register with the tax and customs authorities, obtaining a PAN (permanent account number) and a TAN (tax collection number). Visas for foreign staff can now be issued and bank accounts opened.
Ongoing Formalities for a Company Limited by Shares
All companies incorporated under the Companies Act must file audited accounts annually with the registrar of companies. If turnover exceeds INR6m, a separate tax audit must be carried out.
Employing Staff for a Company Limited by Shares
Limited companies can hire local and foreign staff. The Ministry of Foreign Affairs is responsible for issuing of work permits (employment visas) under the Foreigners Act. They are normally necessary for foreigners, although people with Indian ancestry may be exempted from the need for a visa. The family members of an individual holding a work permit are also permitted to work. Indian consulates issue work permits and visas prior to arrival.
Normally a foreigner employed by a limited company will require an employment visa, although if only short visits are being made a business visa may be sufficient.
The local Foreigners’ Regional Registration Office (FRRO), an agency of the Home Ministry, is responsible for registering the visas of foreigners employed by limited companies in India and for supervision of the individuals during their stay.
Registration with the police is required within 14 days of arrival in India (which may or may not be the same as registration with the FRRO in a given region). Documents required include a registration form in quadruplicate and a registration permit booklet, copies of passport and visa, a copy of the employment contract, copies of a letter of recommendation from the parent company, six passport photos. An HIV/AIDS test result must also be filed, within 30 days.
Visas can be extended, t hough this involves another set of bureaucratic procedures.