An Indian LLC / Limited Liability Company is a popular platform for foreigners wishing to become 100% owners in a South Asian company.
The Companies Act of 2013 regulates LLC’s along with how they are formed, allowable business activities, and dissolved.
Background
India is a former British colony which gained independence in 1947 after nearly 90 years of British rule and became a federal republic in 1950. Its official name is the “Republic of India”.
Its political system is a federal parliamentary constitutional republic with a President, Prime Minister, and a Legislature (Parliament).
Benefits
An Iceland Limited Liability Company (LLC) obtains these benefits:
• 100% Foreign Ownership: Foreigners can own all the shares of a LLC.
• Limited Liability: The owners are responsible up to the amount of share capital they contributed.
• Two Shareholders: A minimum of two shareholders (who can be foreigners) are required to form a LLC.
• Low Minimum Share Capital: The minimum authorized share capital for private limited liability companies is low.
• English: While Hindi is the official language, as a former British colony, English is spoken by most citizens. All documents can be prepared in English.
Company Name
The LLC must choose a name not used by any other India legal entity.
Registering the LLC
After the company name is approved, the incorporation documents must be filed with the Ministry of Corporate Affairs. The required documents include: notarized Directors’ affidavits and declarations, Memorandum of Association, Articles of Incorporation, Subscriber Sheet, and proof of Registered Office Address.
Subscribing to the Articles of Association and the Memorandum of Association demonstrates the shareholders’ intentions to owning the company shares. The subscriptions must be notarized.
Limited Liability
LLC’s are separate legal entities from their shareholders. Liability is limited to their share capital contributions. If a LLC is sued in a court of law, the shareholders do not have personal liability for the company’s liabilities or debts.
Shareholders
The LLC can be formed with a minimum of two shareholders from any country. Shareholders can be natural persons or corporations. There is a maximum limit on the number of shareholders at 50. Ownership of 100% of the shares can be between a mix of foreign nationals and foreign companies.
In a Private LLC, the shareholders’ rights to transfer shares are restricted. The public is not allowed to subscribe to debentures or shares. Bearer shares are not permitted. However, shares can be issued in different classifications. A register of shareholders is required and maintained in the registered office.
A Stamp Duty of 0.50% of the value of transferred shares is imposed.
Directors
An India LLC must have a minimum of two Directors who can be citizens of and residing in any country. Legal entities cannot be Directors. However members of the Board of Directors must include one director who is a citizen and resident of India. The Indian director is not required to be a shareholder. Therefore, most foreigners who create a LLC choose to have three Board of Directors members where two are foreign nationals and one is the required Indian citizen and resident.
A Register of Directors is required which must be maintained in the registered office.
Minimum Share Capital
The minimum paid up share capital is 1 million Rs (Currently, approximately $15,555 USD).
Capital can only be in INR as foreign currency is not allowed. However, like kind contributions are allowed in lieu of cash such as, computers, office equipment, vehicles, etc.
Registered Office and Agent
Every LLC must have a registered office address in India. However, a local registered agent is not required.
Company Officers
Company officers are not required unless a LCC has a capital of 50 million Rs (Currently, approximately $778,000 USD) or more requiring the appointment of a company secretary.
Taxes
The corporate tax rate is 30%. However, India has a Minimum Alternative Tax Rate from 19% to 20% for foreign owned companies.
LLC’s must file an annual income tax return whether they made a profit or showed a loss.
Withholding tax on payments of dividends along with payment of interest and royalties to non-residents are required.
Accounting and Auditing
Every LLC is required to file an audited statement of their annual accounts.
In addition, standard accounting practices are required. Maintenance of company books and records are required and kept in the registered office or in another location in the same city.
Annual General Meeting
An annual general meeting of shareholders is required. Board of Directors meetings can be held anywhere in the world. However, shareholders meetings must be held in India. Meeting Minutes records are required and must be maintained in the registered office.
Public Records
The Ministry of Corporate Affairs records are available to the public. This includes access to records of the shareholders, directors, audits, and financial records.
Time for Registration
It is estimated that registration and approval of the LLC may take up to 10 to 15 business days.
Shelf Companies
Shelf Companies are available for purchase to speed up the registration process.
Conclusion
An Indian Limited Liability Company (LLC) obtains these benefits: 100% foreign ownership, limited liability, two shareholders (who can be foreigners) are required, low minimum share capital, and English is widely spoken and used in all documents.
