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Set up a Company

The Foreign Direct Investment (FDI) has been increasingly liberalized and in June 2000, India revised the foreign investment guidelines substantially, retaining a very small list of areas that need prior approval. Most of the restrictions on foreign investment have been removed and the process is simplified, with a substantially reduction of industrial licensing requirements. Establishing foreign companies involve setting up one or more of the following types of business, under the New Companies Act, 2013:

  • Investing in a joint venture company as a foreign investor.
  • Setting up a holding company in India with plans for downstream investment in other activities or India companies.
  • Setting up a wholly owned subsidiary in India, 100% owned by foreign shareholders.

The procedure to set up a company in India

  1. Selection of the Type a Company: The Promoters of a company may be body corporate or individual entrepreneurs engaged in efforts to incorporate a company. They have the power of defining the object of the company and deciding different matters for the company proposed to be incorporated. It depends upon the purposes for which the company is to be incorporated, capital involved and proposed scale of operations, etc. The promoters can select kind of the company as they wish to form themselves into viz. private company, non-profit making company, public company etc.
  2. Selection of Name: Six names are needed to be selected in order of preference after taking notes of numerous provisions, clarifications, circulars and rules made by the Ministry of Corporate Affairs, etc. In case key word is needed, significance of each key word should be given in the Form INC 1.
    • Applying for ascertaining the availability of the selected name: The promoters are required to make an application to the concerned Registrar of Companies to be submitted electronically to the Ministry of Corporate Affairs on the portal of MCA. An application shall be in Form INC 1 as prescribed and required to be signed by any one promoter or managing director or Manager or director or secretary of the company along with the required fee for ascertaining whether the selected name is available for adoption by the promoters of the proposed company.
    • Approval of the name: The Registrar shall intimate whether the proposed name is available for adoption or not after receiving completed application in Form INC 1. The confirmation of the name is made available by the Registrar, which shall be valid for a period of Sixty Days.In case, if the promoters fail to submit all the essential documents for incorporation within that period, then they are needed to submit another application after payment of requisite fees.
  3. Requirement for having DIN: Every individual, intending to be appointed as director of a company shall make an application for allotment of Director Identification Number (DIN) to the Central Government in the prescribed DIN Form. Thus, before submission of Form INC 1 all the directors of the proposed company should ensure that they are having DIN and if they are not having DIN, it should be first obtained. Specific care should be taken that a person cannot have more than one DIN, thus, a DIN once obtained shall serve the requirement for all the companies in which he is a director or intended to be a director.
    • Requirement for having digital signatures: Every document prescribed under the New Companies Act, 2013 is needed to file with the digital signature of the managing director or director or manager or secretary of the Company, thus, it is compulsorily needed to obtain digital signatures of at least one director to sign the Form INC 1 and other documents. It can be noted that if the director or other persons covered are having digital signatures, their signatures may be used for the above purpose and there is no requirement take new signature again.
  4. Preparation of the Memorandum of Association (MOA) and Articles of Association (AOA): Drafting of the MOA and AOA is normally a step subsequent to the availability of name made by the Registrar. It must be noted that the main objects should match with the objects shown in e-Form. Basically, these two documents are the charter and internal rules and regulations of the companies. Thus, they must be drafted with utmost care with the expert's advice and the other object clause should be drafted in a very broader sense.
  5. Filing of documents with the Registrar: Next step for the promoters is to file the following documents with the Registrar for incorporation of the company. The following documents shall be submitted to the Registrar along with the adequate filing fees as applicable for registration of the company online within a period of Sixty Days.
  6. Payment of Registration fees for a new company: The fees payable to the Registrar at the time of registration of a new company varies according to the authorized capital of a company proposed to be registered as per Schedule X to the Act. Fees can be calculated by the MCA portal.
  7. Certificate of Incorporation (Section 7(2)): On the satisfaction of the Registrar that the requirements and expectations specified in Section 7(2) have been complied by the company, he shall retain the documents and register the MOA, AOA and other documents and issue a Certificate of Incorporation allotting a Unique Number called Corporate Identity Number (CIN).
  8. Commencement of Business: Every Company having share capital is needed to take certificate of commencement of business before it can commence business in Form INC - 21.

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