Business Regulations

Companies Act

The Ministry of Corporate Affairs (MCA) regulates corporate affairs in India through the Companies Act, 2013 and other allied Acts, Rules, and Regulations. The Companies Act consolidates and amends the law relating to companies. This Act regulates a wide range of activities, including incorporation, operationalization, governance, liquidation, and winding up of companies.

The MCA has a three-tier organizational structure with its headquarters in New Delhi; 7 offices of Regional Directors in Ahmedabad, Chennai, Hyderabad, Kolkata, Mumbai, New Delhi, and Shillong; 25 Offices of Registrars of Companies¹; and 24 Official Liquidators in States and Union Territories of India.² Other attached/ subordinate offices/organizations of the MCA include:

• The Serious Fraud Investigation Office, which is a multi-disciplinary investigation agency
• The Competition Commission of India (CCI), which was established under the Competition Act, 2002 for the administration, implementation, and enforcement of the Act
• The Insolvency and Bankruptcy Board of India (IBBI), which oversees insolvency and bankruptcy legislation in India
• The National Company Law Tribunal (NCLT), which is a quasi-judicial body as per the Companies Act, 2013 and the Insolvency and Bankruptcy Code, 2016 (IBC Code). Following the Constitution of the NCLT, the Company Law Board (CLB) stands dissolved and all the powers of the CLB are vested in the NCLT. Furthermore, the powers vested with the High Court in respect of matters pertaining to the merger, amalgamation, capital reduction, winding up, etc. will be exercised by the NCLT
• The National Company Law Appellate Tribunal (NCLAT) is a quasi-judicial body as per the Companies Act, 2013. The NCLAT entertains appeals against the directions or decisions of the NCLT and CCI.

Companies in India are broadly classified into public and private companies. A public company may further be listed or unlisted. Listed public companies have to additionally comply with the regulations issued by the Securities and Exchange Board of India (SEBI).

Foreign Direct Investment

A foreign company planning to set up business operations in India can incorporate a company under the Companies Act, 2013 as a joint venture or a wholly-owned subsidiary. A foreign company could also set up a liaison office/representative office, project office, or branch office of the foreign company, which can undertake activities permitted under the RBI Master Direction - Establishment of Branch Office (BO)/ Liaison Office (LO)/ Project Office (PO) or any other place of business in India by foreign entities as amended from time to time³.

A foreign company may also invest in a Limited Liability Partnership (LLP) under the Limited Liability Partnership Act, 2008 - a relatively new but popular concept in India. Please see Chapter 4: Business Entities to know more about LLPs in India.

FDI in India is governed by the Foreign Exchange Management Act, 1999, and is undertaken in accordance with the FDI Policy, formulated and announced by the government.

The Department for Promotion of Industry and Internal Trade (DPIIT), formerly known as the Department of Industrial Policy & Promotion (DIPP), is a part of the Ministry of Commerce and Industry functioning under the Government of India. The DPIIT usually issues a 'Consolidated FDI Policy Circular' on a regular basis elaborating on the policy and framework with respect to FDI in India. The most recent consolidated FDI Policy was published on 15 October 2020 and the most recent amendment took place in March 2022.⁴

An Indian company may receive FDI either under the automatic route or the government (approval) route, subject to the conditions laid down for this route. FDI is allowed under the automatic route without prior approval of the government or of the Reserve Bank of India (RBI) in certain activities/sectors as specified in the 'Consolidated FDI Policy Circular' and amended via Circulars and Press Notes released from time to time. FDI in activities not covered under the automatic route requires prior approval of the government. The Foreign Investment Facilitation Portal (FIFP) is the new online single point interface of the government created to facilitate FDI for investors. This portal is being administered by the DPIIT. This portal will continue to facilitate the single-window clearance of applications that are made through the government route. Upon receipt of the FDI application, the concerned Administrative Ministry/Department shall process the application as per the Standard Operating Procedure (SOP). If the online filing of the application contains a digital signature by an authorized signatory, the physical submission of the copy is not required. For applications without a digital signature, once the e-filing of the application is completed, the applicant is required to file/courier only a single signed copy of the printed version of the online application, along with the duly authenticated copy of the documents attached with the application, to the Nodal Officers of the concerned Administrative Ministry/Department as per the SOP.

FDI is prohibited in lottery businesses, including government/private lottery, online lotteries; gambling and betting including casinos; chit funds; Nidhi companies (borrowing from members and lending to members only); trading in Transferable Development Rights (TDRs); real estate businesses (other than construction development, real estate broking services and Real Estate Investment Trusts (REITs)) or construction of farm houses; manufacturing of cigars, cheroots, cigarillos, and cigarettes, or tobacco or of tobacco substitutes. The activities/sectors not open to private sector investment are namely atomic energy and railway transport⁵.)

Depending on the nature of the business to be carried out by the Indian entity, specific registrations, approvals, and licenses, such as Permanent Account Number (PAN), Tax Deduction and Collection Account Number (TAN), Shops and Establishments Registration/Factories License, Goods and Service Tax Identification Number (GSTIN), etc. are required to be obtained.

Sector-wise FDI Limits

• 1.Official Liquidators, Ministry of Corporate Affairs, https://www.mca.gov.in/content/mca/global/en/contact-us/official-liquidators.html, accessed on 17 July 2023
• 2.Foreign Investments in India, RBI, http://www.rbi.org.in/scripts/FAQView.aspx?Id=26, accessed on 17 July 2023
• 3.Master Direction - Establishment of Branch Office (BO)/Liaison Office (LO)/Project Office (PO) or any other place of business in India by foreign entities, Reserve Bank of India, https://rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10404, accessed 13 July 2023
• 4.FDI Circulars and Press Notes, Department for Promotion of Industry and Internal Trade, https://dpiit.gov.in/policies-rules-and-acts/press-notes-fdi-circular, accessed 13 July 2023
• 5.Prohibited Sectors, FDI Policy, InvestIndia, https://www.investindia.gov.in/foreign-direct-investment, accessed 17 July 2023