Setting Up An IT Company In India

Now-a-days many small (20-40 people) sized companies working with Ruby on Rails in the US and Australia are planning to set-up their own software units in Pune, India.

I have been helping some of these and I have penned down some of my experiences.

I am assuming that the foreign company has already worked out and finalized their budgets and that they do not have a local presence.

Here are the steps involved:

• First, appoint a local consultant (LC) experienced in the entire process. Then make sure he has some business cards. This is essential as that person knows the local terrain and the rules and regulations of the city where the software unit is planned to be set-up.
• There are many parallel activities that one needs to do. Today, let’s start talking about one of them, namely the process of incorporating the local company (normally a private limited company).

A foreign company planning to set up business operations in India can do so as under:

• As a foreign company through a Liaison Office / Representative Office, Project Office or a Branch Office
• As an Indian company through a Joint Venture or a Wholly Owned Subsidiary
• Foreign Company is one that has been incorporated outside India and conducts business in India. These companies are required to comply with the provisions of Companies Act, 1956

For more details, refer the Nasscom site

Amongst the various ways of achieving the objective of setting up an IT company in India, I am suggesting one possible way:

• Through your LC, appoint a local CPA (CA as they are known here).
• To register a private company, you need a minimum of two resident Indians as Directors. If you know the LC well or have enough trust in him/her, appoint the LC as one of the Indian Directors.
• The proposed Directors must have their DIN and DSC. This is in line with mandatory e-filing of all documents with the office of Registrar of Companies (ROC). The Ministry of Company Affairs’ site gives the full details. All the intending Directors have to obtain the Director Identification Number (DIN). The CPA can get a provisional DIN for you on the net within 10 minutes. Having done so, the CPA will save the provisional DIN form as a .pdf file, download it and then print the same. On the first page of the printed form, a photograph is to be affixed at the place provided and the proposed Director has to sign at two places, i.e. one below the photograph and the other at the bottom of the next page. Next, the CPA will take a photo-copy of the proposed Director’s proof of identity and proof of residence and send the printed form with the attached photo-copies to the Central DIN Processing Cell at NOIDA. The proposed Director will normally get the DIN approval letter within 15 days.(*)
• The Information Technology Act, 2000 provides for use of Digital Signatures on the documents submitted in electronic form in order to ensure the security and authenticity of the documents filed electronically. This is the only secure and authentic way that a document can be submitted electronically. As such, all filings done by the companies under MCA21 e-Governance programme are required to be filed with the use of Digital Signatures by the person authorized to sign the documents. For this purpose a Digital Signature Certificate (DSC) is required. This process again could take between 10-15 days. The approximate cost for DIN and DSC is Rs 3500-00 (Use currency converter, if required). The DSC is normally valid for 2 years.

It is very likely that one of the foreign national (FN) in the parent company would like to become a Director in the local private company. The FN also needs to get his DIN approved as per the process described above.

(*) The FN needs to take out photo-copies of his/her passport for proof of residence, get those photo-copies notarized in the USA and then a certification of those notarized copies is to be obtained from the official of the Indian Embassy in the USA. It’s advisable that the FN send all the necessary documents along with the notarized and certified documents to the CPA, who in turn can submit to the Central DIN Processing Cell at NOIDA.

• The next step is getting the name of the proposed company approved from the office of ROC, which I will discuss in one of my next blog posts.

What has been your experience? Do you find the process very cumbersome and time consuming? Are there any suggestions?

Part 2: Company Name Approval\ Part 3: Locating Office Space

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