Forming an Indian Company – The Essentials

 

Incorporating in India, if done rashly, can result in delays, unnecessary paperwork, and one big mess! That’s why we created a simple checklist you can use to get your dream “Indian” company off the ground….

The Companies Act, 1956 (Act) governs the formation of a company.  There are two types of companies – Public Limited Companies and Private Limited Companies

I. Private Limited Company: 

Forming a Private Company is Easy!

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Photo Credit: http://www.freedigitalphotos.net/images/view_photog.php?photogid=1058

A Private Limited Company can be formed with a minimum of two shareholders and two directors. Further, the minimum paid up capital for a Private Company is about US$ 2,500 (approximately).

A private company has the following features:

  1. The right to transfer shares is restricted by the Company Articles of Association.
  2. The maximum number of its shareholders is limited to 50. (You want to make sure you, the U.S. business make up majority shareholding in order to retain maximum control.)
  3. No offer can be made to the public to subscribe to its shares and debentures.
  4. Few compliance requirements (unlike the sea of compliance issues typical to a U.S. corporation)

 II. Public Company:

A Public Company does not contain restrictions on share transfer in its Articles of Association. Public companies can be formed with a minimum of seven shareholders. There is no maximum limit on shareholders for Public companies. The minimum paid-up capital required for a Public company is about US$ 12,500 (approximately) and the minimum number of directors is three.

III. Incorporation Formalities:

Incorporation is through registration with the Registrar of Companies (ROC) under section 33.  The ROC is a statutory authority formed under Companies Act. Think of the ROC as your Secretary of State.

For incorporation, the following steps are involved:

  1. Name Availability: Selecting the name of the company and getting it approved from the ROC. Upon scrutiny and satisfaction, the ROC issues a name availability letter. (Step 1 similar to Step 1 of forming a U.S. Corporation).
  2. Drafting Incorporation Documents and Bylaws: After the name is approved, Memorandum of Association and Articles of Association (MOA) are drafted. These are two separate documents. The MOA states the main, ancillary / subsidiary and other objects of the proposed company. The AOA  (what we call bylaws) 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. 
  3. Other documents:  (i) copy of the agreement, if any, which company proposes to enter into with any individual for appointment as a managing or whole-time director, (ii) a declaration that all the requirements of the Act have been complied with.
  4. MOA along with other necessary documents (certain forms & POAs) are filed with the ROC. The filing fees are dependent on the authorized share capital of the Company.
  5. After scrutinizing the documents, if the Registrar is satisfied, the ROC enters the name of the company in the ROC and issues a Certificate of Incorporation.

IV. Practical Concerns:

Whereas Private companies can commence their business from the date of Certificate of Incorporation, Public companies are required to file certain additional documents and obtain a Certificate of Commencement of Business.

A company can normally be incorporated within a period of 15 to 20 days. The Government of India has introduced e-filing through which Company incorporation (including filing of subsequent statutory documents) can be filed in electronic form. Details of e-filing procedure are available at the website of Ministry of Company Affairs at www.mca.gov.in.

 Other regulatory requirements:

No.

Procedure

1.

Obtain director identification number (DIN) on-line

It is an unique identification number allotted to an individual who is an existing director (both Indian & foreign) of a company or intends to be appointed as director of a company pursuant to Section 266A and 266B of the Companies Act, 1956, (as amended vide Act No 23 of 2006).

2.

Obtain digital signature certificate (for both Indian & foreign directors) on-line

Digital Signature Certificates (DSC) are the digital equivalent (that is electronic format) of physical or paper certificates. Examples of physical certificates are drivers’ licenses, passports or membership cards. Certificates serve as proof of identity of an individual for a certain purpose; for example, a driver’s license identifies someone who can legally drive in a particular country. Likewise, a digital certificate can be presented electronically to prove your identity, to access information or services on the Internet or to sign certain documents digitally.

3.

Reserve the company name with the Registrar of Companies (ROC) on-line

4.

Pay stamp duties online, file all incorporation forms and documents online and obtain the certificate of incorporation.

5.

Make a seal.

6.

Visit an authorized franchise or agent appointed by National Securities Depository Services Limited (NSDL) or Unit Trust of India (UTI) Investors Services Ltd to obtain a Permanent Account Number (PAN). A permanent account number (PAN) is a 10-digit alphanumeric number, issued in the form of a laminated card, by the Income Tax department, to any “person” who applies for it or to whom the department allots the number without an application.

7.

Obtain a tax account number for income taxes deducted at source from the Assessing Office in the Mumbai Income Tax Department.

8.

Register with Office of Inspector, Shops and Establishment Act

9.

Register for VAT online

10.

Register for profession tax

11.

Register with Employees’ Provident Fund Organization

12.

Register for medical insurance (ESIC)

13.

Register for Import Export code from Director General of Foreign Trade

RBI approval for foreign companies investing in India and FIPB approval, if required.

14.

Software Technologies Parks of India registration (STPI) if required.

15.

RBI approval for foreign companies investing in India and FIPB approval, if required.

- By Lolita Fernandes with input from Anitha Cadambi, Esq.

About Lolita: Lolita Fernandes received her Bachelor of Law degree in 2008 from the University of Mumbai, India, where she also completed a Master of Law degree with a specialization in criminal law. She is admitted to practice law in India.  She worked as an in-house counsel in India until June 2010 and much of her work focused on drafting and vetting business contracts, commercial agreements, loan documentation and rendering advice on compliance and regulatory related matters. She graduated from University of Southern California, Gould School of Law with a LLM degree in May, 2011.  Currently, she is working as a volunteer legal intern at the Eviction Defense Collaborative, a non-profit legal services clinic counseling tenants facing eviction. (http://www.linkedin.com/in/lolitafernandes

 

 

 

ac6000:

An honest revelation on “Doing Business in Madrid”.

Originally posted on flexfokus:

I’m still pretty worked up about the whole setting up a business thing. I learned about some other aspects of setting up a business in Madrid, which also made me uneasy. Despite the bureaucracy, there are a lot of great things about starting a business in Madrid. Sold yet? The initial paper work is only one very small part of building a business. I see the entire situation in Spain at the moment as an opportunity. When better to start a business in a new unknown city than during a crisis when nobody else is doing it, or understanding it for that matter….right?

So here are the 5 things I like about starting a business in Madrid:

1)   Labor: Despite what people may think, Spanish professionals do not take siestas, do not party all night during the week, and are able to meet deadlines. Are there professionals that just want…

View original 652 more words

Doing Business In Italy – Memoir from an Italian Business Lawyer

Looking to start your own business in Italy? Have no clue as to the form of entity that addresses your business, liability, and financial concerns?

LOOK NO FURTHER…….

It’s not uncommon for a young entrepreneur to open a start-up in a foreign country. In fact, we highly encourage it!! U.S. goods and services are hot commodity items all over the world.

One of the first problems a start-up owner faces is the dilemma concerning the right form of organization that best meets his needs. In other words, he has to ask which are the forms of business organization available in Italy, what are the legal requirements and what are the advantages/disadvantages of each legal structure.

The Italian Civil Code regulates all the forms of business organization a person/company can start and run in Italy. A major distinction lies between forming a partnership v. a corporation. We won’t talk about partnership because we all know that unlimited liability serves as an unattractive feature for angel investors and/or venture capitalists.

I. Limited Liability Company

The most likely fit for a start-up is a società a responsabilità limitata (limited liability company, LLC).  No prizes for guessing! U.S. companies are often advised by their lawyers to heavily swear by the LLC model.

What are the advantages and disadvantages of forming an LLC in Italy?

An LLC combines SIX great advantages altogether:

  1. It provides a shield to all his members, indeed they are afforded limited liability;
  2. It has a very simple and dynamic structure that can be shaped to fit almost any need;
  3. It requires a relatively low capital to start – this could be crucial to a start-up owner who is financially secure and has anticipated foreign expansion but may want to use his reserve funds for growth in Italy as opposed to directing the funds for actual start-up expenses. [Article 2463 of the Italian Civil Code states that an LLC needs a subscribed share capital of 10,000 € but only ¼ of said capital (2,500 €) must to be paid-up before executing the articles of organization];
  4. Usually the members’ contributions are in cash (deposited with a bank in Italy that will issue a certificate to be attached to the notary deed) but the articles of organization can provide otherwise;
  5. It’s not limited to natural persons, also an artificial person such as a corporation or an LLC can be a member. Indeed an LLC is often created and used by big corporation as a holding company; and
  6. It has no restrictions on foreign members. This could be the factor that influences your decision the most – you want control and being a member of an LLC helps you retain control.

An LLC can also be formed and registered by a single member but in this case he must pay the entire share capital of 10,000 €, otherwise he will be held personally liable as in a partnership.

BUT…..As time goes by an LLC could change from a single member LLC to a plurality of members and vice versa. In the latter case, if the former members didn’t vest all the contributions they subscribed to in the articles of organization as yet, the remaining members have 90 days to fill this void.

DISADVANTAGES:

  1. The minimum capital requirement (2,500 € or 10,000 €) might be out of bounds for those who don’t have actual savings dedicated to foreign expansion;
  2. The notary fees (Articles of Organization must be made before a notary); and
  3. The bureaucracy fees — An LLC is required to file an annual balance sheet within 120 days after the end of the fiscal year and most of the times the members will retain the service of a chartered accountant to comply with this requirement.

Moreover an entrepreneur needs to be aware that in certain cases regulated by article 2477 of the Italian Civil Code, an audit committee or a single auditor is required.

 II. Simplified Limited Liability Company – For the Young ONLY 

In January 2012, the Italian government approved a new set of reforms to improve business competition, promote the Italian economy and help young entrepreneurs to start their businesses. The government introduced a new type of LLC for young entrepreneurs, under the age of 35, called Società Semplificata a Responsabilità Limitata (Simplified Limited Liability Company)

  1. It can be formed and registered without any formalities (no notary deed is required) and
  2. The minimum share capital required is of 1 € that must be subscribed and paid-up.

The simplified limited liability company is a very recent but a promising form of business organization. It will take time to fully understand its potential but so far the only disadvantage seems the restriction on LLC membership. Unfortunately, only natural persons can be members of a simplified limited liability company.

Need more information? Read: http://export.gov/italy/doingbusinessinitaly/index.asp

– By Fabrizio De Fabritiis, Esq. with input from Anitha Cadambi, Esq.

About Fabrizio: Fabrizio is a lawyer from Milan, Italy. He received his LL.M from the University of California, Berkeley, School of Law (Boalt Hall). He can be reached at contedefa@gmail.com. Check his company website out at http://www.lawyer4italy.com/.

Is Arbitration Right For Me?

One way to deal with the uncertainty of foreign courts is to include an arbitration clause in your joint venture agreement. However adequately defining an arbitration clause is a daunting task.

You want to ask yourself the following questions…..

1. How many arbitrators do I want?

Will a panel be more beneficial than a single arbitrator? Usually from a negotiation standpoint, parties agree to each select one arbitrator of their choice and then mutually agree on a third arbitrator.

However issues do arise when parties don’t agree on a third arbitrator. My only advice is to know your partner well — if your partner is hard to deal with from the start, he may not be the right fit for you.

2. What Qualifications should an arbitrator have?

Naturally for complex business matters, you want an arbitrator who has a background in international business, foreign investment, and has a working knowledge of international business transactions.

3. What disputes do I include? 

Choosing which disputes an arbitration clause should cover is extremely difficult. You don’t want to miss naming a specific type of dispute but at the same time you don’t want a general arbitration clause covering all disputes because using the courts in certain circumstances can prove to be beneficial.

Including a line that any disputes regarding the arbitration clause will also be resolved by means of arbitration is something to consider.

4. What rules govern my arbitration?

Parties might decide to come up with their own rules regarding the conduct of arbitration. Parties may also decide to choose a recognized arbitration institution rules. Whichever you decide to choose, make sure it suits your business.

What if a situation arises and no rule exists?

You could include a section in your arbitration clause determining how such a situation should be dealt with.  For ex: parties will let the arbitrator determine the rule that applies in such a situation.

5. How do I enforce an Award?

Once an award is determined in your favor, enforcing your award could prove to be both time-consuming as well as expensive. You want to use the defendants’ property situated in a foreign country to satisfy your award. In order to do this, you need to use the foreign country courts to enforce your judgment and we all know dealing with a foreign court is not easy. Currently 146 Countries recognize the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards. (http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/NYConvention_status.html) New York Convention members are bound by common standards that facilitate enforcement of arbitration awards.

Therefore, despite your initial thoughts on including a boilerplate arbitration clause from a template agreement, I highly recommend consulting a lawyer first.

The Calcutta High Court of India recently heard an interesting arbitration debate. Read the story here: http://www.business-standard.com/india/news/india-loses-bits-arbitration/465944/.

Sourcing Your Business From A Foreign Country: Doing It The Right Way

We often draw inspiration from reading success stories of other entrepreneurs. My inspiration for this post was largely drawn from two interesting ventures – Rocky Patel Cigars and Teavana.

Both ventures market their goods in the U.S. based on products they develop abroad. Both developed a loyal customer base over time. Making the decision to start a business in the U.S. based on products you develop abroad can prove to be risky, but then again, you wouldn’t be starting your own business, if you were risk averse!

3 Tips To Succeed in Sourcing Your Business

I.    Know Your Product

I don’t think we emphasize this element enough. Knowing your product can make all the difference, especially when you depend on a foreign supplier. The CEO of Rocky Patel Cigars spent a year in Honduras studying how his cigars were made. Early on, he detected that shipments coming from his supplier were being severely harmed in transit. There was no way to replace broken and damp cigars except by producing new ones. He had to find a way out.

More importantly, he discovered that his customers were not satisfied with the quality of cigars being produced. He decided to join forces with a local cigar grower in Honduras and refine the process for making high quality cigars. At the end of the day, it was the quality of his cigars that brought customers back to him.

 Takeaways:

  1. Pick a carrier for your products only after a thorough due diligence. Talk to your broker and figure out which carriers are known for poor deliveries and which are known to travel problem-free. Sometimes a longer transit time could still mean safe delivery of goods.
  2. Quality trumps quantity. Be willing to spend time developing your product with your suppliers.

II.     Outsiders have the Inside Hand

Rocky Patel was a complete outsider when he entered the cigar business. But did not deter him from pursuing his real passion. He went selling door to door and believed that establishing a relationship with an individual face-to-face was far more effective than other selling tactics he had used in the past. He wanted to hear first hand from cigar connoisseurs what they liked or disliked about his product and didn’t hesitate to change that which needed changing.

Takeaways:

  1. Embrace criticism
  2. Understand your customer.

II.    Innovative Marketing

Teavana probably gets the award for the brewing some of the best tea I have ever sampled.  As an over critical Indian, liking tea that doesn’t spell chai is hard!

I only walked into Teavana’s store because a sweet lady offered me free samples. Of course my Indian-ness kicked in the minute I heard free!

It was definitely the quality of those samples that forced me to actually walk in to the store and buy the tea. I credit the marketing – I would never have walked in but for those free samples.

I soon discovered that most of their tea was sourced from China, India, Nepal and other Asian countries! It made sense though, these countries are known for their tea. But having to deal with a predominantly coffee drinking U.S. market is not easy. Handing out samples and letting the tea speak for itself was just the start to something great.

Takeaways:

  1. Let your product speak for itself –You didn’t spend your entire life savings to only question it later!

Need a Trademark: 3 Simple Questions to Ask Yourself

In light of my previous post on the importance of registering your trademark, I thought it best to walk you through the initial registration process. The U.S. Patent and Trademark Office (USPTO) website wants every potential registrant to ask themselves the following questions, prior to registration.

3 Simple Questions To Ask Yourself

(1)   What is the mark that you want to register?

  • You can apply for a standard mark.

 A Standard Character mark is the most flexible of all mark depictions. It grants protection to the wording itself, without regard to the font, style, size, or color.  Although the mark looks like plain typed wording when registered, a Standard Character mark means that you can change how you display the wording over the life of the trademark. Must See Video: http://www.youtube.com/watch?v=b8wJ4gVa2yk&feature=youtu.be) 

  • You can apply for a stylized mark or design mark.

A stylized mark is for words that appear in a particular font or color scheme. With a design mark you protect words combined with a design or protect a design element(s) only. 

(2)  What are the goods/ services in connection with which you wish to register the mark?

This is probably the most important part of your application.  Failure to indicate the right good or service in your application will result in your application being rejected. 

Use this ID Manuel (http://tess2.uspto.gov/netahtml/tidm.html) to find your good or service.

 (3) Are you will be filing an application based on actual existing use of the mark or a bona fide intention to use a mark in the future.

If you are already using your mark in commerce, then you will file your application based on actual use.

A bonafide intent to use a mark arises when you have more than an idea but your idea is less than market ready. If there is scope for you to use your mark in the future in interstate commerce, you can file an intent to use application. 

This is only gets the ball rolling…..there is more to a trademark application than just these three questions. However, if you can successfully answer these questions, you have won half the battle.

Trademarking Your Social Media

Everyone is rushing to get on the social media bandwagon. Don’t get me wrong, I recommend using social media to promote your business as well, especially when you are starting off,  but don’t forget – the law never fails to follow you. 

Follow these 2 simple steps before proceeding:

1. Do a trademark search

Even before picking a name for your website, you SHOULD do a trademark search. You don’t want your website to named using words forming part of a registered trademark. Remember, registering your domain name is easy… however, if your domain name contains a registered trademark, you may be forced to take your website down. Any buzz you created with a recognizable company name just went down the drain. 

2. Do a Social Media search

As you begin to promote your business using Twitter, Facebook, Linkedin and Tumblr; you could run in to a host of issues. First, if someone has their company name trademarked, they have the right to object to use of their trademark on your newly created Twitter, Facebook, Linkedin or Tumblr page. All a trademark owner needs to do is write to Twitter or Facebook, who will then take the necessary action to help the trademark owner reclaim rights to the Twitter or Facebok page. The trademark owner may not even want to have a company Twitter page, but he definitely has the right to, given his registered trademark. 

Even if a federally registered trademark does not exist, you still face the risk of a popular twitter or facebook page that was created long before you started using your company name. Until you register your trademark, you don’t have rights to these social media pages.

Register your trademark first then proceed to market your business.

A free trademark search can be conducted using the US Patent and Trademark Office’s Trademark Electronic Search System (http://tess2.uspto.gov/bin/gate.exe?f=tess&state=4010:tnhit1.1.1)

You can also use Trademarkia – it’s a free service and they do a social media search for you!  All you have to do is enter your proposed company name and Trademarkia pulls out different social media profiles that are currently using the name entered. (http://socialmedia.trademarkia.com/socialmedia/)  Bloomberg featured Trademarkia in 2011.  You can find that article here – http://www.bloomberg.com/news/2011-05-31/trademarkia-upends-trademark-filing-process-angers-ip-lawyers.html

At the end of the day, Remember: your social media campaign will be largely dependent on how early you register your trademark.