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Firm Incorporation by Non Resident Indian (NRI) | Corpstore
1. Incorporation of a firm by NRIs
In India private limited company and the LLP both considered as the separate
legal status. The company formation process in case of foreign investors takes
little bit longer for few weeks and each stages of the process are conducting via
online. Applying the correct legal entity is the key considerations for foreign
investors and entrepreneurs. This is the first stage of incorporation when they
planning to do their business in India. There are vast varieties of options
depending on the business requirements. Here in this article I am going to share
the two important points when a non-resident does their business in India. The
two reasons are Limited liability partnership and private limited company
because of the below reasons.
Two mandatory reasons
1) Global tolerability: both private and LLP are globally acceptable or
tolerable. Both forms are having same legal authority and regulatory
recognitions.
2) Limited duties: the shareholder of the private company and the partners
of the LLP are having less duty. And most of the time it is an added
advantages to choose these entities as their preferred options.
3) Jurisdictive simplicity: income tax law, corporate law, foreign exchange
regulation etc are some of the main ruling principles in India for every
business. Consider private and LLP as a separate legal form from their
members and partners.
Both the private and LLP are recognized with different laws in India. The
private limited company is incorporated by Companies Act 2013. Likewise, an
LLP is organized by the Limited Liability Partnership Act 2008 (LLP Act). There
are various jurisdictive laws associated with foreign investors who want to build a
base in India. The laws are Foreign Exchange Regulations, Income-tax laws, etc.
2. Private company sealing by a non-resident shareholder
The private company registration is based on online procedures and it takes weeks
to get complete in case of foreign investors, as we already mentioned. The record
preparation and the drafting of documents normally take extra time.
Document drafting includes collecting the passport copy along with utility bill or
driving license of the shareholder. In case of body corporate member the resolution
passed by the body corporate along with trademark of the proposed name is
mandatory. Cases like if the proposed shareholders are non-resident, there are
maximum amount of requirements from the companies Act. If the subscriber is
from one of the common wealth country, then the documents should authenticated
by the lawyer from respective jurisdiction. The shareholders who are from the
countries which are signatory to The Hague Convention and other jurisdictions,
then the documents should notarize and apostilled.
Business activity in India
Another key consideration is the proposed business activity in India. The
department of industrial policy and promotion supports foreign direct investment
(FDI) and it provides guidance vis-à-vis sectors / areas open for foreign investment
into India. Most of the sectors are open to foreign investment without any legal
requirement. Some need government approval for foreign investment. Such as
multi-brand retail trade, defence, telecom, broadcasting and aviation. As well as
the peoples outside from India have to ensure that the conditions specified under
the FDI are connecting and satisfactory.
3. The next key consideration is the fund requirement and the mode of funding. The
company who is having a foreign shareholder get the funds from equity investment
or debt funding or both.
Debt funding has certain restrictions like maturity period, all in cost ceiling, etc in
case of non-resident entrepreneurs. Acquiring real estate and other lending
involves funds from foreigners and here includes excepting of general funds.
Certain cases the exceptions are raising at the time of foreign equity sharing.
In certain cases like debt for private sectors the approval from Reserve Bank of
India is mandatory. And also mandatory to get the foreign debt funds. If you want
to register a company, issue of share certificates, appointment of auditors and
obtaining tax registrations etc need initial legal requirements.
LLP Registration with a non-resident partner
LLP formation is also considered as online based. Each and every company
registration process are online centric. It also last up to few weeks. The time lag is
mainly because of document authentication and preparation. The government
introduced a new form called FiLLiP to reduce the registration lagging. The newly
registered Limited liability companies have to submit the LLP agreement to the
registrar to cut out the time for the complete the setup process. Authentication
document for both LLP and the company are same as mentioned above. Always
foreign financing is permitted under the automatic route in LLP where 100% FDI
is allowed and where there is no such FDI links. Based on the funding of an LLP
4. currently there is no such requirement for debt funds from overseas. Other
requirements in an LLP includes appointing any designated partners, get the tax
registration, and other regulatory registrations etc. The non-resident investors can
prefer any type of legal entity based on their business requirements. Registering an
LLP and participate in the very huge opportunity is one of the outstanding
economies in the world.
FAQ
1) What about the minimum number of requirements in a private company and
in LLP?
In private company there must be 2 members as minimum count, likewise,
in an LLP there must be two members as minimum count.
2) How can we conduct a meeting for private and LLP companies?
In case of LLP there are no such statutory requirements for holding the
general and annual meeting. But in case of a company the directors should
meet 4 times per a calendar year. The meeting gap should not exceed 120
days. In every year the company members and whole team conduct an
annual meeting and everyone has to present in that meeting.
3) What is the minimum count of directors/ designated partners mandatory in
an LLP as well as in a company?
5. In a Pvt Ltd company, there should be two individual directors are
necessary. Any one of them should be resident in India. In case of LLP there
should be 2 designated partners and 1 of them should be resident in India.
4) Who is considered as resident in India in case of LLP and Pvt Ltd under the
companies Act?
Based upon the companies Act 2013 the non-resident in India means one of the
directors should stay In India more than 182 days in a financial year. Based on
LLP the resident means a person who stayed in India more than 182 days and it
is called financial year. The foreign national who satisfy such conditions are
become a director or designated partner.