BUSINESS ORGANIZATION Indian Institute of Foreign Trade NEW DELHI 12 TH FEBRUARY 2005 by SAMEER RASTOGI Advocate International Corporate Legal Consultant
Private Limited Company
Public Limited Company
Types of Business Entities
Sole Proprietorship No registration required Unlimited liability Used for small business or by Professionals No Separate Legal Entity Business Organisation
Section 11 of Companies Act, 1956
No partnership consisting of more than 20 persons shall be formed
Indian Partnership Act, 1932
Section 4 – Partnership is the relation between persons who have agreed to share profits of business carried on by all or any of them acting for all
Registration not Compulsory
Governing Act – Companies Act, 1956
Special Features of Company
Company is a Separate Legal Entity
It can sue and be sued in its own name
The liability of the shareholders are limited to the extent of their shareholdings
Company is distinct from its shareholders
It can hold property in its own name
Types of Companies in India Business Organisation DESCRIPTIONS PRIVATE COMPANY PUBLIC COMPANY Definition Which by its article restricts: Numbers of members to 50 Transfer of shares Invitation of public to subscribe its debenture, shares etc. Acceptance of deposits from person other than its shareholders and directors Which is not * private Governing Laws Companies Act, 1956 Companies Act, 1956 SEBI Act, 1992 and allied laws.
Types of Companies in India Business Organisation DESCRIPTIONS PRIVATE COMPANY PUBLIC COMPANY Incorporation Time 22 to 3 weeks 2 to 3 weeks Minimum Paid up Capital INR 1,00,000/- INR 5,00,000/- Maximum No. of shareholders 50 (Fifty) No limit Minimum No. of Shareholders 2 (Two) 7 (Seven) Transferability of Shares Restricted Freely. If company is listed then through stock exchange(s) Minimum No. of Directors 2 3
Types of Companies in India Business Organisation DESCRIPTIONS PRIVATE COMPANY PUBLIC COMPANY Whether a Foreigner can be Director YYes Yes Whole Time Director (WTD) / Managing Director (WTMD): Appointment Appointment not compulsory and No restriction on appointment Appointment : Not compulsory, If paid up capital < Rs. 5 Cr. Compulsory. If paid up capital => Rs.5 Crs WTD / WTMD: Remuneration No restriction As per schedule XIII, otherwise permission of Central Government . Foreigner as WTM D / WTD No restriction With the approval of Central Government
Types of Companies in India Business Organisation DESCRIPTIONS PRIVATE COMPANY PUBLIC COMPANY Loan to Director etc. YYes With the previous approval of Central Government Contracts with Director etc. Yes With the consent of Board, If paid up capital of the company is (One) 1 Cr. or more, approval of Central Govt. is necessary Loan, Investment & Guarantee by the company No restriction Some restrictions
Charitable Organization Business Organisation - Trust - Society - Section 25 Company It can do business and earn any amount of profits, but the distribution of profits cannot be made to Shareholders / trustee
Regulatory Bodies in India
Foreign Investment Promotion Board (FIPB)
Reserve Bank of India (RBI)
Security Exchange Board of India (SEBI)
Registrar of Companies (RoC)
Trade Mark Registry (TMR)
Director General of Foreign Trade (DGFT)
Law relating to JV & Foreign Cos. in India - FDI In India TELECOM – 49% ( 74%) INSURANCE – 26% (Proposed 49%) POWER – 100% PETROLEUM REFINING – 100% DRUGS & PHARMA – 100% HOTELS – 100% ROADS – 100% Business Organisation
FDI in India Automatic Route for FDI is not available for Domestic Airlines Petroleum Sector (except for private sector oil refining) Investing companies in Infrastructure & Services Sector Defence and Strategic Industries Atomic Minerals Print Media Broadcasting Postal services Courier Services Establishment and Operation of satellite Development of Integrated Township Tea Sector
FDI in India
FDI is Prohibited in
Gambling and Betting
Housing and Real Estate business
Agriculture ( excluding Floriculture, Horticulture, Development of seeds, Animal Husbandry, Pisiculture and Cultivation of vegetables, mushrooms etc. under controlled conditions and services related to agro and allied sectors) and Plantations (Other than Tea plantations)
How a Foreign Company can enter into India?
Project / Site Office
100 % Wholly Owned Subsidiary
Permitted activities for a Liaison Office in India
Representing in India the parent company/group companies.
Promoting export import from/to India.
Promoting technical / financial collaborations between parent / group companies and companies in India.
Acting as a communication channel between the parent company and Indian companies .
Procedure for setting up Liaison Office
Apply in Form FNC-1 in quadruplicate to RBI
English version of the certificate of incorporation / registration attested by Indian Embassy / Notary public in the country of registration.
Latest balance sheet of the applicant company / firm.
Certified photo-copy of the agency Agreement, if any, with parties in India.
Photo-copy of the Agreement / draft- Agreement / correspondence indicating the terms of appointment of the proposed representative duly authenticated by the applicant.
Where applicable, certified photocopy of Government of India’s approval for undertaking projects in India.
Where applicable, certified photocopy of the contract / Agreement for undertaking activities / rendering services.
Conditions Imposed While Granting Permission
No commission / fee will be charged or any other remuneration received by the Indian office of the foreign company for its liaison activities in India.
Except the liaison work, the office will not undertake any activity of a trading, commercial or industrial nature without the prior permission of RBI
The entire expenses of the Indian office will be met exclusively by remittance from abroad through normal banking channels.
Export/Import of goods
Rendering professional or consultancy services.
Carrying out research work, in which the parent company is engaged.
Promoting technical or financial collaborations between Indian companies and parent or overseas group company.
Representing the parent company in India and acting as buying/selling agent in India.
Rendering services in Information Technology and development of software in India.
Rendering technical support to the products supplied by parent/group companies.
Procedure for setting up Branch Office – Same as Liaison Office Business Organisation
Joint Ventures are of two types
Incorporated Joint Ventures
Contractual Joint Ventures
a) Financial Joint Venture
b) Technical Joint Venture
Essentials for Joint Ventures
Name of the JV
Funding and Financing of JV
Constitution of Board of Directors, Powers of Directors, Meeting
Transfer of shares, right of refusal, buy out provisions
Non disclosure, non competition, IPR’s
Governing laws, Dispute resolution
Verify Limit of FDI permitted in proposed JV
Drafting of Moa & Aoa in accordance with JV Agreement