BUSINESS ORGANIZATION

1. BUSINESS ORGANIZATION Indian Institute of Foreign Trade NEW DELHI 12TH FEBRUARY 2005 by SAMEERRASTOGI Advocate International Corporate Legal Consultant

2. Types of Business Entities • Sole Proprietorship • Partnership • Private Limited Company • Public Limited Company • Charitable Organization Business Organisation

3. Sole Proprietorship No registration required Unlimited liability Used for small business or by Professionals No Separate Legal Entity Business Organisation

4. Partnership • Section 11 of Companies Act, 1956 • No partnership consisting of more than 20 persons shall be formed • Indian Partnership Act, 1932 • Section 4 – Partnership is the relation between persons who have agreed to share profits of business carried on by all or any of them acting for all • Unlimited Liability • Registration not Compulsory Business Organisation

5. Company • Governing Act – Companies Act, 1956 • Special Features of Company • Company is a Separate Legal Entity • It can sue and be sued in its own name • The liability of the shareholders are limited to the extent of their shareholdings • Company is distinct from its shareholders • It can hold property in its own name Business Organisation

6. Governing Laws DESCRIPTIONS Definition PRIVATE COMPANY Which by its article restricts: Numbers of members to 50 Transfer of shares Invitation of public to subscribe its debenture, shares etc. Acceptance of deposits from person other than its shareholders and directors Companies Act, 1956 PUBLIC COMPANY Which is not * private Companies Act, 1956 SEBI Act, 1992 and allied laws. Types of Companies in India Business Organisation

7. Maximum No. of shareholders Transferability of Shares Minimum No. of Shareholders Minimum Paid up Capital Minimum No. of Directors DESCRIPTIONS Incorporation Time 2 PRIVATE COMPANY INR 1,00,000/- 22 to 3 weeks 2 (Two) Restricted 50 (Fifty) 3 No limit 2 to 3 weeks 7 (Seven) PUBLIC COMPANY Freely. If company is listed then through stock exchange(s) INR 5,00,000/- Types of Companies in India Business Organisation

8. Whole Time Director (WTD) / Managing Director (WTMD): Appointment WTD / WTMD: Remuneration Foreigner as WTM D / WTD DESCRIPTIONS Whether a Foreigner can be Director No restriction YYes No restriction Appointment not compulsory and No restriction on appointment   PRIVATE COMPANY PUBLIC COMPANY Yes With the approval of Central Government Appointment : Not compulsory, If paid up capital < Rs. 5 Cr. Compulsory.If paid up capital => Rs.5 Crs As per schedule XIII, otherwise permission of Central Government. Types of Companies in India Business Organisation

9. Contracts with Director etc. Loan, Investment & Guarantee by the company DESCRIPTIONS Loan to Director etc. PRIVATE COMPANY YYes Yes No restriction PUBLIC COMPANY With the previous approval of Central Government With the consent of Board, If paid up capital of the company is (One) 1 Cr. or more, approval of Central Govt. is necessary Some restrictions Types of Companies in India Business Organisation

10. Charitable Organization - Trust- Society - Section 25 Company It can do business and earn any amount of profits, but the distribution of profits cannot be made to Shareholders / trustee Business Organisation

11. Regulatory Bodies in India • Foreign Investment Promotion Board (FIPB) • Reserve Bank of India (RBI) • Security Exchange Board of India (SEBI) • Registrar of Companies (RoC) • Trade Mark Registry (TMR) • Director General of Foreign Trade (DGFT) Business Organisation

12. Law relating to JV & Foreign Cos. in India - FDI In India TELECOM – 49% ( 74%) INSURANCE – 26% (Proposed 49%) POWER – 100% PETROLEUM REFINING – 100% DRUGS & PHARMA – 100% HOTELS – 100% ROADS – 100% Business Organisation

13. FDI in India Automatic Route for FDI is not available for Domestic Airlines Petroleum Sector (except for private sector oil refining) Investing companies in Infrastructure & Services Sector Defence and Strategic Industries Atomic Minerals Print Media Broadcasting Postal services Courier Services Establishment and Operation of satellite Development of Integrated Township Tea Sector

14. FDI in India • FDI is Prohibited in • Retail Trading • Atomic Energy • Lottery Business • Gambling and Betting • Housing and Real Estate business • Agriculture (excluding Floriculture, Horticulture, Development of seeds, Animal Husbandry, Pisiculture and Cultivation of vegetables, mushrooms etc. under controlled conditions and services related to agro and allied sectors) and Plantations (Other than Tea plantations) Business Organisation

15. How a Foreign Company can enter into India? • Liaison Office • Branch Office • Project / Site Office • Joint Venture • 100 % Wholly Owned Subsidiary Business Organisation

16. Liaison Office Permitted activities for a Liaison Office in India • Representing in India the parent company/group companies. • Promoting export import from/to India. • Promoting technical / financial collaborations between parent / group companies and companies in India. • Acting as a communication channel between the parent company and Indian companies. Business Organisation

17. Procedure for setting up Liaison Office • Apply in Form FNC-1 in quadruplicate to RBI • English version of the certificate of incorporation / registration attested by Indian Embassy / Notary public in the country of registration. • Latest balance sheet of the applicant company / firm. • Certified photo-copy of the agency Agreement, if any, with parties in India. • Photo-copy of the Agreement / draft- Agreement / correspondence indicating the terms of appointment of the proposed representative duly authenticated by the applicant. • Where applicable, certified photocopy of Government of India’s approval for undertaking projects in India. • Where applicable, certified photocopy of the contract / Agreement for undertaking activities / rendering services. Business Organisation

18. Liaison Office Conditions Imposed While Granting Permission • No commission / fee will be charged or any other remuneration received by the Indian office of the foreign company for its liaison activities in India. • Except the liaison work, the office will not undertake any activity of a trading, commercial or industrial nature without the prior permission of RBI • The entire expenses of the Indian office will be met exclusively by remittance from abroad through normal banking channels. Business Organisation

19. Branch Office Permitted activities • Export/Import of goods • Rendering professional or consultancy services. • Carrying out research work, in which the parent company is engaged. • Promoting technical or financial collaborations between Indian companies and parent or overseas group company. • Representing the parent company in India and acting as buying/selling agent in India. • Rendering services in Information Technology and development of software in India. • Rendering technical support to the products supplied by parent/group companies. Procedure for setting up Branch Office – Same as Liaison Office Business Organisation

20. Joint Ventures • Joint Ventures are of two types • Incorporated Joint Ventures • Contractual Joint Ventures a) Financial Joint Venture b) Technical Joint Venture • Essentials for Joint Ventures • Name of the JV • Shareholding Pattern • Funding and Financing of JV • Constitution of Board of Directors, Powers of Directors, Meeting • Transfer of shares, right of refusal, buy out provisions • Non disclosure, non competition, IPR’s • Governing laws, Dispute resolution Business Organisation

21. Joint Ventures • Verify Limit of FDI permitted in proposed JV • Drafting of Moa & Aoa in accordance with JV Agreement • Incorporation of JV company • Private & Public JV Company Business Organisation

22. 100% Wholly Owned Subsidiary • Verify FDI for 100% WOS • Incorporation of WOS • Private & Public WOS Business Organisation