Simplification of company incorporation processes in India

Simplification of company incorporation processes in India

Legal & Compliance

Dezan Shira and Associates

Dezan Shira and Associates

15 Mar 2018, 09:44 — 5 min read

The government of India is taking some concrete steps to improve the ease of doing business in India. With the new changes, starting and running a business in India is becoming easier, thereby encouraging growth in the economy and industry. Last year, in the World Bank rankings, India improved by 30 places to reach 100, in the ease of doing business ranking index – a notable achievement, and one that is now being built on with relevant policy changes.

The SME sector, especially, benefits from the simplification of incorporation procedures. Given that revenue from SMEs comprise 32% of the national GDP, it is prudent of the government to make it easier to start a business. The government, in this case, becomes a catalysing force for growth in the economy.


Removal of incorporation fees

With effect from January 26, 2018, no incorporation fees will be required by the Registrar from One Person Companies (OPCs) and small companies whose nominal share capital is less than or amounts to US$15,566.63 (Rs 1 million).


However, the fees to be paid to the state government – Stamp Duty on the company’s Memorandum of Association (MoA) and Articles of Association (AoA) – will remain unchanged.


Those claiming the ‘zero incorporation fee’ benefit must maintain their status of a small company for a period of one year – from the date of incorporation. What this translates into is the maintenance of the company’s authorised capital at below or equal to US$15,566.63 (Rs 1 million).


The relaxation follows from the government’s amendment of the Companies (Registration Offices and Fees) Rules, 2014.


Company name reservation

In January, the corporate affairs ministry (MCA) introduced a new online facility ‘RUN’, which stands for ‘Reserve Your Name’. The RUN form replaces the INC-1 form.


Prior to the RUN form, companies could reserve their name in advance through the INC-1 form or directly via the online incorporation application – Simplified Proforma for Incorporating Company Electronically or SPICe form INC-32. SPICe was launched in October 2016 to provide fast and efficient incorporation services within stipulated time frames, in line with international best practices.


Allotment of Director Identification Number

The process of allotting the Director Identification Number (DIN) is revised as well.


The DIN can now be allotted through the combined SPICe form itself at the time of an individual’s appointment as director.


Speedier incorporation process, corporate governance bolstered

The above changes are part of what the Modi government has termed Government Process Re-engineering (GPR) initiatives for making the incorporation process speedier in India and reduces the number of steps involved in starting a new business.


Previously, the corporate affairs ministry simplified the process for companies applying for their Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN).


The government has also been keen to improve corporate governance in India: The Companies (Amendment) Act, 2017 came into effect on January 4, this year, and the Insolvency and Bankruptcy Code was passed in May 2016. India has also revamped its commercial arbitration regime.


Overall, the reforms target the improvement of India’s Doing Business ranking, which moved 30 spots to 100 in October last year – after being ranked 130 by the World Bank in 2017.


Investors should note that the federal agency – the Department of Industrial Policy and Promotion (DIPP) – now tracks the state-wise implementation of ease of doing business reforms in India.


Currently, the top five ranking states in India – in terms of ease of doing business – are Haryana, Andhra Pradesh, West Bengal, Jharkhand, and Rajasthan.


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Dezan Shira and Associates

Dezan Shira & Associates is a pan-Asia, multi-disciplinary professional services firm, providing legal, tax and operational advisory to international corporate investors....

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