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BUSINESS ORGANIZATION. Indian Institute of Foreign Trade NEW DELHI 12 TH FEBRUARY 2005. by SAMEER RASTOGI Advocate International Corporate Legal Consultant. Types of Business Entities. Sole Proprietorship Partnership Private Limited Company Public Limited Company

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Business organization l.jpg


Indian Institute of Foreign Trade






International Corporate Legal Consultant

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Types of Business Entities

  • Sole Proprietorship

  • Partnership

  • Private Limited Company

  • Public Limited Company

  • Charitable Organization

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Sole Proprietorship

No registration required

Unlimited liability

Used for small business or by Professionals

No Separate Legal Entity

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  • 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

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  • 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

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Governing Laws




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


Which is not * private

Companies Act, 1956

SEBI Act, 1992 and allied laws.

Types of Companies in India

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Maximum No. of shareholders

Transferability of Shares

Minimum No. of Shareholders

Minimum Paid up Capital

Minimum No. of Directors


Incorporation Time



INR 1,00,000/-

22 to 3 weeks

2 (Two)


50 (Fifty)


No limit

2 to 3 weeks

7 (Seven)


Freely. If company is listed then through stock exchange(s)

INR 5,00,000/-

Types of Companies in India

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Whole Time Director (WTD) / Managing Director (WTMD): Appointment

WTD / WTMD: Remuneration

Foreigner as WTM D / WTD


Whether a Foreigner can be Director

No restriction


No restriction

Appointment not compulsory and

No restriction on appointment  




With the approval of Central Government

Appointment :

Not compulsory, If

paid up capital < Rs. 5 Cr.


paid up capital => Rs.5 Crs

As per schedule XIII, otherwise permission of Central Government.

Types of Companies in India

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Contracts with Director etc.

Loan, Investment & Guarantee by the company


Loan to Director etc.




No restriction


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

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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

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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)

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Law relating to JV & Foreign Cos. in India - FDI In India

TELECOM – 49% ( 74%)

INSURANCE – 26% (Proposed 49%)

POWER – 100%



HOTELS – 100%

ROADS – 100%

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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


Postal services

Courier Services

Establishment and Operation of satellite

Development of Integrated Township

Tea Sector

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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)

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How a Foreign Company can enter into India?

  • Liaison Office

  • Branch Office

  • Project / Site Office

  • Joint Venture

  • 100 % Wholly Owned Subsidiary

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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.

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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.

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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.

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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

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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

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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

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100% Wholly Owned Subsidiary

  • Verify FDI for 100% WOS

  • Incorporation of WOS

  • Private & Public WOS

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