• Many tax exemptions available to the company set up in Special Economic Zone;
• Many tax incentives available to IT companies;
• India has got double taxation treaties with many countries; 
• Only INR 100 000 (US $ 2500 approximately) is required to form a private company;
• Skilled and intelligent employees available at nominal rate;
• With its large base of English speaking skilled human resource, it is most sought after destination for business process outsourcing, Knowledge processing etc.
  

Definition of a Private Limited Company:

A Private Limited Company is a Company limited by shares in which there can be maximum 50 shareholders, no invitation can be made to the public for subscription of shares or debentures, cannot make or accept deposits from Public and there are restriction on the transfer of shares. The liability of each shareholder is limited to the extent of the unpaid amount of the shares face value and the premium thereon in respect of the shares held by him. However, the liability of a Director / Manager of such a Company can at times be unlimited. The minimum number of shareholders is 2.

Definition of a Public Limited Company:

A Public Limited Company is a Company limited by shares in which there is no restriction on the maximum number of shareholders, transfer of shares and acceptance of public deposits. The liability of each shareholder is limited to the extent of the unpaid amount of the shares face value and the premium thereon in respect of the shares held by him. However, the liability of a Director / Manager of such a Company can at times be unlimited. The minimum number of shareholders is 7.

The entity is best suited:

The choice of entity depends on circumstance of each case. Private Limited Company has lesser number of compliances requirements. Therefore, generally where there is no requirement of raising of finances through a public issue and the ownership is intended to be closely held by limited number of persons, Private Limited Company is the best choice.

The minimum paid-up capital of a Private Limited Company:

The minimum paid up capital at the time of incorporation of a private limited company has to be Indian Rupees 1, 00,000. There is no upper limit on having the authorized capital and the paid up capital. It can be increased any time, by payment of additional stamp duty and registration fee.

The difference between authorized capital and paid up capital:

The authorized capital is the capital limit authorized by the Registrar of Companies up to which the shares can be issued to the members / public, as the case may be. The paid up share capital is the paid portion of the capital subscribed by the shareholders.

The procedure in obtaining a name approval for the proposed Company:

An application in Form No. 1A needs to be filed with the Registrar of Companies (ROC) of the state in which the Registered Office of the proposed Company is to be situated.  The application is required to be signed by one of the promoters. The details to be state in the said application are as follows:

1. Four alternative names for the proposed company. (The name can be coined names from the objects of the proposed company or the names of the directors, etc. but should definitely be indicative of the main object of the company. Justification for the name needs to be specified along with the application)

2. Names and addresses of the promoters (Minimum 7 for a public company while 2 for private company).

3. Authorized Capital of the proposed company.

4. Main objects of the proposed company.

5. Names of other group companies.

On submitting the application, the ROC scrutinizes the same and sends the approval / objections in about 10 days to the applicant. On fulfilling of the objections a formal letter of name approval is issued.

The Memorandum of Association (MOA) and the Articles of Association (AOA) of a company and  the procedure in their regard:

On receipt of the name approval letter from the ROC the MOA and the AOA are required to be drafted. The MOA states the main, ancillary / subsidiary and other objects of the proposed company. The AOA contains the rules and procedures for the routine conduct of the proposed company. It also states the authorized share capital of the proposed company and the names of its first / permanent directors. Later MOA and AOA are required to be stamped.

A stamp duty is required to be paid on the MOA and on the AOA. The stamp duty depends on the authorized share capital.

The documents required to be executed for incorporation:

The following documents are required to be executed (signed) before they are submitted to the ROC:

1. MOA and AOA - These are required to be executed by the promoters in their own hand in the presence of a witness in quadruplicate stating their full name, father’s name, residential address, occupation, number of shares subscribed for, etc.
2. Form No. 1 - This is a declaration to be executed on a non-judicial stamp paper of INR 20 by one of the directors of the proposed company or other specified persons such as  Attorneys or Advocates, etc. stating that all the requirements of the incorporation have been complied with.
3. Form No. 18 - This is a form to be filed by one of the directors of the company informing the ROC the registered office of the proposed company.
4. Form No. 29 - This is a consent obtained from all the proposed directors of the proposed company to act as directors of the proposed company. (Not required in case of private company).
5. Form No. 32 - This is a form stating the fact of appointment of the proposed directors on the board of directors from the date of incorporation of the proposed company and is signed by one of the proposed directors.
6. Name approval letter in original.
7. Power of Attorney signed by all the subscribers of MOA authorizing one of the subscribers or any other person to act on their behalf for the purpose of incorporation and accepting the certificate of incorporation.
8. Power of Attorney in case of a subscriber who has appointed another person to sign the MOA on his behalf.
9. Filing fees as may be applicable.

Procedure of issuance of a certificate of incorporation:

After the documents in point 5 of above, are filed, the ROC calls the attorney on a specific date for scrutiny and making the corrections in the MOA and AOA filed. On complying with the same, the certificate of incorporation is granted to the attorney.

Time to start the operations for the newly formed company of its business:

On receipt of the certificate of incorporation, the public company has to complete certain other legal formalities such as a statutory meeting (within 6 months), statutory report, etc. On completion of the said formalities and on filing of the statutory report with the ROC the ROC issues the certification of commencement of business to the company. Thereafter, the Public Company can start the business operations. The Private Company can start its business immediately on incorporation.

Procedure of comply with the legal formalities when the party is not stationed in India?

You can give Power of Attorney to a person to sign the documents on your behalf. After the Company is incorporated, you can appoint Alternate Directors, to function on your behalf while you are not in India. But at least once, you should be in India within one month of the incorporation of the Company. There can be one meeting of Board of Directors during your stay in India and all other formalities including those of appointment of Alternate Directors can be complied with.

Other approvals are required for foreign investor in India:

Generally, prior approval is required from the RBI before investing in India. Some categories of businesses are covered under automatic approval process. However, one has to apply for the same.  There are some post-incorporation filing formalities after the remittance of capital from overseas to India and on issue of shares.