Start a business

Every year, tens and thousands of people start their Business. But only some succeed and some don’t. This path requires a lot of hard work, immense dedication and the will to continue. But once you succeed and get a fruitful reward, it is worth facing all the obstacles.

A business can be started either by an Indian Owner, Foreign Owner or by setting up a special entity. Also business can be started in India or Company Formation outside India can also be done.

How to start a business?

1. Building a sensible business plan.

2. Evaluating your finances

3. Determining your business structure

4. Building the team

5. Branding & Advertising

6. Growing your Business

Indian Owner

Starting a business by an Indian resident requires a number of rules and regulations to be followed.

Start a Business in India

Before starting a business, it’s a ‘great idea’ which is needed that can make you achieve success. In India, especially in Delhi getting your company registered is a major struggle for entrepreneurs. Also seeing this it can be assumed why India has been ranked 142nd on the Ease of Doing Business Index and 158th on Ease of Starting a Business. However the newly introduced INC-29 (a five-in-one form), by the Ministry of Corporate Affairs (MCA) in May 2015, will contribute towards improving this ranking.

Start-Up India

Start-Up India is an action plan introduced by Prime Minister Narendra Modi for promoting bank financing to start-up ventures in order to encourage entrepreneurship in our Country. Also an agreement has been there to take the initiative to set up more than 75 such startup ‘support hubs’ in the National Institutes of Technology (NITs), the Indian Institutes of Science Education and Research (IISERs), National Institutes of Pharmaceutical Education and Research (NIPERs), and The Indian Institutes of Information Technology (IIITs) in Delhi and other cities by “The Ministry of Human Resource Development” and “The Department of Science and Technology” under the Start-Up India scheme.

The Reserve Bank of India also said that it will take steps to help improve the “ease of doing business” in the country and thus contributing to an ecosystem which is conducive for the growth of start-up businesses.

However besides this, there can be a foreign owner planning to do a business in India. The procedure then becomes a little different in that case.

How to start a start-up in India

For simplifying and pacing the process of registration of a business, MCA (Ministry of Corporate Affairs) introduced INC-29 (Integrated Incorporation Form). With INC-29 Company registration has merged process of getting Name Approval, Director’s Identification Number (DIN) and Incorporation Application into one single process. This therefore helps in easing the process of company registration and making it fast.

1. Obtaining Digital Signature Certificate (DSC) from MCA-authorised agency

2. After the DSC, you need to prepare INC-29.

Director’s Identification Number

Name approval

Memorandum and Articles of association

Registered office verification

Appointment letters and declaration

3. Filing INC-29

Issue of Incorporation Certificate

Foreign Owner

Foreign Nationals Wanting to do Business in India

For investing in an Indian Company or for owning an Indian Company, a foreign national (other than a citizen of Pakistan or Bangladesh) or even an entity which is incorporated outside India (other than the one incorporated in Pakistan or Bangladesh) can acquire shares of the company in order to start business in, subject to the FDI Policy of India. Moreover, a minimum of one Indian Director (Indian Director and Indian Resident) is also required for incorporation of an Indian Company along with an address in India.

Operations can be set up in India by foreign companies through:

1. Liaison Office/Representative Office

2. Project Office

3. Indian Subsidiary Company

Also, these companies have to register themselves with Registrar of Companies (ROC) within 30 days of setting up a place of business in India.

Can Foreigner Start Business in India

Before even setting up business the most common question is “Can Foreigner start business in India”. So the answer to this question is ‘Yes’. India is among the world’s top fastest growing economies and has great human potential and market culture. Because of certain attractive advantages, a huge amount of FDI flows into our Country and therefore it keeps on increasing every year. But for foreign nationals starting their business in India need to submit a copy of their passport and address proof.

Private Limited Company registration is one of the best methods for foreign nationals and foreign companies wanting to do business in India. An approval from RBI and Government is required in order to open a branch/liaison office or Project Office in case of foreign companies as this option is for available for foreign nationals.

But sometimes few entities are formed to accomplish some specific task or tasks. They are known as Special Entities or Special Purpose entities.

Foreign Directors in Indian Companies

NRI’s, Foreign Residents and Foreign Nationals can act as directors of Indian Company under Companies Act-2013. But the person first needs to obtain a Director Identification Number (DIN) after obtaining Digital Signature Certificate. While setting up the company it must be noted that at least one of the members in the board must be an Indian resident and Indian citizen, whereas other board members can be of any nationality.

But sometimes few entities are formed to accomplish some specific task or tasks. They are known as Special Entities or Special Purpose entities.

Special Entities

Special entities are legal entities which are created to fulfill specific, narrow or temporary objectives. A special purpose entity (SPE) is also referred to as a “bankruptcy-remote entity” and its operations are limited to the acquisition and financing of specific assets. Usually it’s a subsidiary company with an asset/liability structure and legal status thus making its obligations secure even if the parent company goes bankrupt.

Advantages of Special Purpose Entities

1. Reduction of risk for the firm

2. Best Suited for Project Financing

3. Helps in transferring the asset

Starting a Business with Special Entity Registration in India

Special purpose entity is established as a limited company under Companies Act 2013 with specifications for the promoters regarding their equity shares.

The Main Corporation creates a SPE (its affiliate) so as to sell assets on its balance sheet to the SPE and obtaining financing through the SPE.

1. Obtaining the funds to purchase the asset through debt financing from independent equity investors.

2. Starting a circular transaction by transferring the money raised to the main corporation first and then to the investment bank. Flow of assets is in the opposite direction that is from the main corporation to the SPE and then to the investment bank and back to the main corporation, thus it effectively cancels each other out.

3. Just because the SPE owns the assets, which then become the collateral for the securities issued, evaluation by lenders is done for the credit quality of the collateral and not the credit quality of the corporation. Hence, lower funding costs are possible.

4. Besides the Special Entities, In order to start your business, company formation outside India can also be done.

Company Formation outside India

Growing your business and going abroad is the most important part of your Business Expansion Policy. Globalization is the aim of every business organization but this requires certain rules and regulations to be taken care of. Indian companies can directly invest outside India by way of subscription to the Memorandum of Association of a foreign entity or contribution to the capital, signifying a long term interest in the overseas entity. Foreign Exchange Management Act (FEMA) governs the investments outside India.

While investing abroad Indian entrepreneurs may face various commercial and political risks. In order to ensure safe and successful overseas expansion plans, it is essential to provide them a comprehensive insurance so as to cover against all such risks. Accordingly, Export Credit Guarantee Corporation of India Limited (ECGC) was established by the Government of India under the administrative control of the Ministry of Commerce & Industry which provides all such insurance facilities to them.

In order to start a business outside India therefore requires in depth knowledge and more expertise when compared to an Indian Owner starting a business in Indian cities like Delhi and others.

Establishing a business outside requires measured steps to be taken. The proper mode to enter foreign markets also needs to be taken care of:

1. Licensing or Franchising

2. Fully owned manufacturing Facilities

3. Joint Ventures

4. Strategic Alliance

5. Exporting