India Moves to Simplify Procedures for Incorporation of Companies, Amends Requirements for Reporting Foreign Investment

Indian authorities are considering proposals to simplify procedures for companies, including foreign companies, to set up entities in the country. The proposals, if accepted, could reduce the average time taken for incorporation of a company to as little as one day.

The recommendations include steps to digitize the application forms and payment of fees minimizing paper work, speeding up the process and reducing instances of human supervision.

Indian authorities have also prescribed new rules for allotting the Director’s Identification Number (DIN) that will significantly simplify the DIN obtaining procedure.

Director Identification Number (DIN) for Foreign Directors

The DIN procedures effective immediately are:

• The application for DIN will now have to be made using an eForm i.e. E-form DIN 1 (Eform). Till date, DIN form was filled online and the same had to be printed, signed physically and sent by post. The form must now be signed by the director (applicant) using his/her Digital Signature Certificate (DSC) or by persons stated in point below. The concept of using DSCs for acquiring DINs in India is being introduced for the first time.
• Alternatively, the E-form can be signed by any other director/ Company Secretary in whole time employment of existing Company (using their DSC), in which the applicant is proposed to be appointed as a director or by a professional (i.e. CA/CS/ICWA in whole time practice). Such signing person shall also confirm that he has verified the particulars of the Applicant given in the application.
• Where the E-form is verified by the professional, the DIN will be approved by the system immediately online. In other cases the DIN cell will examine the application and same shall be processed within one or two days.
• The filing fees will have to be paid online (i.e. challan (application on paper) payments will no longer be accepted).
• The MCA will not accept physical submission of documents. This means that scanned copies of documents along with verification by the applicant must be attached with the eForm. This will save cost and time of sending the notarized documents by courier / post.
• The supporting documents attached may be self attested by the applicant or duly attested by practicing professional (CA/ CWA/ CS) signing the eForm. However, this will not apply for foreign directors. In case, the director is residing outside India, the attached supporting documents should be attested by the Consulate of the Indian Embassy, Foreign public notary or Company secretary in full time employment / CEO / Managing director of the Indian company in which he/she proposed to be a director. There will be no requirements to send such documents physically.

Incorporation of Companies (Form-1) and Establishment of Principal Place of Business in India by Foreign Companies (Form-44)

The Ministry is also considering recommendations to simplify and speed up the process related to Incorporation of Companies and Establishment of principal place of business in India. The following recommendations have been made:

• Only Form-1 (Application or declaration for incorporation of a company) to be approved by the ROC Office. Form 18 (Notice of situation or change of situation of registered office) and 32 (appointment of director/secretary, etc.) shall be processed by the system online.
• There will be one more category, i.e., Incorporation Forms (e.g. Form 1A – name approval, 44 - Documents delivered for registration by a foreign company and other procedural forms like , Form 37, 39, 68) will have the highest priority for approval.
• Average time taken for incorporation of company will be reduced to one (1) day only, though practically it will take more than that.
• A Notification to notify minor changes in e-forms 18 and 32 to enable them to be taken on record through Straight through Processing (STP) mode for aforesaid procedure is being issued separately.

The above changes are still in the recommendation stage and actual notifications along with the effective dates are likely to be issued shortly.

Reporting Foreign Investment in India: Modifications to FC-GPR

The Reserve Bank of India has issued a notification which includes modifications and amendments to the FC-GPR form for reporting foreign investment in India. The part B of the FC-GPR that required annual reporting of all the foreign investments direct/portfolio/re-invested earnings/others in the Indian company made during the preceding financial year (April to March) has been replaced with “Annual Return on Foreign Liabilities and Assets.”

Highlights of the amendment are:

• All Indian companies which have received Foreign Direct Investment (FDI) and/or made FDI abroad in the previous year(s) including the current year should submit the return by July 15 (the change is applicable with immediate effect). The earlier deadline for part B of the FC-GPR was June 30.
• Additional details such as ‘Nature of Business’, the appropriate group of activity to which principal line of business pertains, also need to be provided.
• Balance Sheet for the company’s reporting year should be enclosed along with the returns.
• If the reporting entity’s balance sheet is not audited, the information submitted must be based on un-audited figures. The balance sheet may be forwarded in due course. After auditing, if there are major differences in the reported figures, revised return may be submitted along with a copy of the balance sheet.
• Any disinvestment made by a non-resident direct investor of the reporting Indian company during the year should be reported.
• The new reporting requirements will increase the compliance requirements. Such requirements would include computing and reporting of the detailed information as required by the above mentioned Annual Return on Foreign Liabilities and Assets, sending additional communications to the Reserve Bank of India if the financials of the company have not been audited till July 15, etc.

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Published: June 22, 2011. The information provided on this page is intended merely to highlight issues for general information purposes only. It is not comprehensive nor does it provide legal advice. Any information is subject to change without notice. No liability whatsoever is accepted by Nair & Co.