How to start a business in India

TransferWise content team
03.10.17
5 minute read

India is the seventh largest country in the world, comprised of 29 states and seven union territories. It’s home to more than a billion people, including tens of thousands of foreigners.

While the entrepreneur class has grown in recent years, official business tends to move slowly. The World Bank ranks India 131 out of 189 countries in terms of ‘ease of doing business.’ If you’re planning set up a business in India, here’s what you need to know.

What type of business can I incorporate in India?

India has a sophisticated business infrastructure. In general, any incorporation option that’s available in a Western country is also available in India. Your options for setting up a company in India are:

Sole Proprietorship

A sole proprietorship is the most direct route to setting up a business. You can serve as the sole owner of the company, with complete control and liability. You aren’t required to file legal documents with the government, but you must have a bank account.

Partnership

You can register a partner when you’re forming a company, or anytime after. If you add a partner to your sole proprietorship, you don’t have to register it. However, a registered partnership is granted certain privileges, like the right to file a lawsuit.

Private Limited Company

A private limited company is one of the most popular types of business entities for expats in India. Requirements include restricting the number of shareholders to 200, and prohibiting the sale of shares to the public. This type of company must have at least two directors.

Public Limited Company

A public limited company must have at least three directors, and seven or more shareholders. Public companies have to obtain trading certificates, and can grant shares to the public. They also need government approval for managerial appointments.

Unlimited Company

An unlimited company in India has no limits on the number of shareholders. They can also be registered without a minimum amount of share capital.

Liaison Office

Liaison offices have to get permission from the Indian government to conduct activity. They can’t directly engage in commercial transactions, but they can collect data and facilitate technical or financial collaborations. The head office is always located outside of India.

Subsidiary Company

Many foreign companies choose to set up branches or subsidiaries in India. Subsidiaries are established with the approval of the Reserve Bank of India, and are subject to applicable taxes.

What’s the company registration process in India?

World Bank data estimates an average of 26 days to register a business in India. Though this may seem like a long time, it’s a large improvement on the 123 days it took in 2003. Some of these registration processes can be conducted simultaneously. India is slowly making an effort to streamline this entire process, but progress is slow. For now, here are the required steps:

  1. Get a Digital Signature Certificate (DSC) – Your company directors must apply for a Digital Signature Certificate from an approved agency such as e-Mudhra or MTNL Trustline. To obtain your certificate, you need a notarized proof of identity and address. This procedure can be done online and is part of the National Informatics Centre's efforts to streamline business registration procedures. It’ll take one to three days to go through, and will cost you between ₹700 and 2,500 (no more than £30) per certificate.

  2. Get a Director Identification Number (DIN) – You obtain a DIN by filling out a DIR-3 form, which must be digitally verified by a chartered accountant or a company secretary. Include a scanned copy of proof of address and a photograph. It takes one day to process and costs ₹500 per DIN. You can do this via the Ministry of Corporate Affairs (‘MCA’).

  3. Register the Company Name – Through the Ministry of Corporate Affairs, you can search for a company name and file an eForm INC-1, which can be digitally signed and uploaded to the MCA portal. You can pay the fee of ₹1,000 electronically. It takes between two and seven days to be approved by the registrar. The name must be unique, and if you don’t incorporate within 60 days of your reservation, the reservation will lapse.

  4. Pay stamp duties and file a certificate of incorporation – This step can be completed online through the Ministry of Corporate Affairs. The application for incorporation (Form INC-7) must have scanned copies of the Memorandum of Articles attached. It takes five days on average to complete this process. For a company whose share capital is between ₹500,000 and ₹1,000,000, the stamp duty costs around ₹2,300. The filing fees will cost close to ₹3,000.

  5. Create a company stamp – This takes one day and costs around ₹350. The stamp is used in various official signatures, like when a company director signs an application on behalf of the company.

  6. Obtain a Permanent Account Number (PAN) – Several authorised agents can assist you with this process, such as the Unit Trust of India or the Central Securities Depository Services Limited.

  7. Open a bank account, which you’ll need to register for taxes. There’s no charge and the process can be completed within a couple of days in person.

  8. Register membership with the Employees Provident Fund Organisation (EPFO) – The Ministry of Labour and Employment requires companies of 20+ people to join the EPFO. Employers apply online and send copies of application documents to the EPFO office. This takes about a week.

  9. Register online for VAT – VAT registration is conducted through the Department of Sales Tax. This will take about 10 days and cost ₹500 plus ₹25 for stamp duty.

  10. Register for medical insurance – The Employees State Insurance Corporation requires employers to submit enrolment into the state’s medical insurance program. This can be done online in about nine days.

  11. Register for a tax account number – This 10-digit number is required by anyone deducting or collecting tax, by the Income Tax Department. This registration costs ₹55 and takes a week. You can apply online or in person.

  12. Register for profession tax – The application may be submitted online, along with a company bank account number. This registration takes two days and is free of charge.

What are my legal obligations as a business owner in India?

There are several regulatory requirements when you’re conducting business in India. Every public company with a turnover of ₹300 Crores or more must have at least one female director. Additionally, companies with a net worth of ₹500 Crores or more must create a Corporate Social Responsibility Committee, with at least one independent director.

For taxes, employers must obtain a certificate of registration. Companies must also appoint an auditor within 30 days from incorporating, per the India Companies Act of 2013. Companies are also responsible for keeping accurate logs of profits and losses and filing an annual return every year with the Registrar of Companies.

All employers must submit Declaration Forms to obtain insurance for all employees. Many states in India have state-run medical insurance as an alternative option for employees.

Further Resources

For more help with entrepreneurship in India, check out the Ministry of Micro, Small, and Medium Enterprises. They list several government schemes and resources for entrepreneurs.

India also has a single-access platform for all business-related information through the Business Portal of India. The Small Industries Development Bank of India maintains several programs for entrepreneurs with smaller companies.

Whether you’re a sole entrepreneur, or looking to create a large business in India, follow this guide and you’ll be up and running in no time. Good luck!

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