Go for the LLP option

Limited Liability Partnership is a corporate entity formed under the Limited Liability Partnership Act, 2008 and one of its important characteristics is that its partners have limited liability (unlike partnership firms registered under the Indian Partnership Act, 1932). Though a partnership, an LLP has perpetual succession and separate legal existence from its members. Thus, an LLP is a corporate structure that combines benefits of both, a company and a partnership firm. As the compliance cost for a LLP is much lower than other forms of business and because of its greater flexibility, LLP can be a good option for foreign entities to start business in India. This form of business is best suited to service industry, as well as small and medium scale enterprises.

For foreign investors:

Compliances under FEMA, 1999: It should be noted that foreign investment is permitted in an LLP only if the LLP is engaged in activities where (a) 100% foreign equity ownership is permitted under automatic route and (b) there are no performance conditions prescribed under the FDI  Policy. For example, an LLP engaged in construction development or industrial parks will  not be eligible to receive foreign direct investment (FDI) since there are “FDI-linked performance conditions” for the sector even though 100% FDI under automatic route is permitted in the sector.

Therefore, an intending foreign investor must go through all the conditions subject to which a LLP can be formed in India.

Steps for incorporation:

 Approving Authority: Registrar of Companies (RoC) and Reserve Bank of India (RBI)

I. Obtaining DSC (Digital Signature Certificate) of proposed partners from any licensed Certifying Authority.

II. Obtaining and Registering DIN (Director Identification Number)/ DPIN (Designated Partner Identification Number) of proposed partners: It is mandatory for proposed partners to obtain DIN/ DPIN under the Companies Act, 2013. DIN/ DPIN can be applied electronically in Form DIR-3 on the website of Ministry of Corporate Affairs (MCA), along with required documents and filing fee. As per General Circular No. 44/2011, the Ministry, vide notification dated 5th July, 2011, had integrated the Director’s Identification Number (DIN) with Designated Partnership Identification Number (DPIN)

III. Applying for availability of name: The fore most step in formation of an LLP is to apply for availability of name in Form 1 which has to be filed with MCA for reservation of name of the proposed LLP along with Details of business activity and Proposed monetary value of partner’s contribution.

IV. Filing of incorporation documents: Once the name of proposed LLP has been approved, incorporation documents, which include subscriber’s statement including consent, details of partners, Registrar's reference number for name approval, Proof of address of registered office of LLP etc. are required to be filed in e Form 2.

V. Drafting and execution of LLP agreement: LLP Agreement is one of the most crucial documents as it governs the rights and duties of partners. It may be drafted as per the convenience and mutual understanding among partners of LLP. Various aspects covered under the agreement may include amount and manner of contribution, rights and duties of partners, description of business of proposed LLP, etc.

VI. Drafting & Filing of LLP agreement: LLP is formed once the Form 2 is approved by the Ministry. LLP agreement governs the rules regulating the actions of the members of the LLP setting out the powers of the LLP. Various aspects covered under the agreement may include amount and manner of contribution, rights and duties of partners, description of business of proposed. It should be then filed within 30 days of incorporation of LLP in Form 3.

Post incorporation compliances (immediately after incorporation)

Foreign Exchange Management Act (FEMA), 1999

I. Obtaining FIRC (Foreign Inward Remittance Certificate): As soon as the amount of consideration from foreign investor is received in India, authorised dealer bank will issue FIRC

II. Reporting to the Reserve Bank of India (RBI): LLP is then required to report to RBI (through its authorised dealer) in Form FOREIGN DIRECT INVESTMENT-LLP(I), along with other documents, within 30 days of the receipt of amount of consideration.

Quick Easy Approach For Foreign Companies And Citizens

Often a foreign company / citizen or Non-Resident Indian wishes to start operations in India very quickly. Delays in getting digital signature and DIN lead to the company incorporation process getting delayed. During such times, it may be a good option to follow the following steps:

• Two Indian resident-citizens (A and B) who already have PAN and DIN incorporate an

Indian company with the name, objects and authorized capital as required by the promoter based abroad.

• A and B are the initial directors of the new Indian company.

• As and when the foreign promoter has completed all the formalities related to DIN etc., A and B transfer all shares held by them in the new company to the foreign promoter.

• After transfer of shares, new directors are appointed. Immediately thereafter, both A and B resign as directors.

• In case it is so required, either A or B can continue as a Director to comply with the requirements of resident director.

Either A or B or both can continue to hold one share each of Rs. 10 as long as so required by the foreign promoter.

The author can also be reached at mehak.48@gmail.com