How to set up a Branch office in India in 30 Days

Hi, my name is Charan Arora, Principal Consultant at Esource Global. My company – Esource Global is an India centric consulting firm that provides complete India based solutions to businesses by offering the following services.

• Company Incorporation & Domiciliation Services that helps opening branch office in India. (This article is based on this service)
• Real Estate Advisory Services to assist in leasing / purchasing office space.
• Management Recruitment Services to recruit employees for your branch office in India.
• Payroll Services for processing payroll and filing as per statutory requirements
• Accounting and auditing services to maintain books of accounts as per Indian accounting and taxation laws.
• Management & IT Consulting Services to strengthen the business model with business plans, research, IT infrastructure and Internet strategies.
• Legal Services

Formation of a Branch office or company in India:

The formation of a company starts with the conceptualization of the birth of a company and determination of the purpose for which it is to be formed.The promoters enter into preliminary contracts with vendors and make arrangements for the preparation, advertisement and the circulation of prospectus and placement of capital. If the contract is entered by a promoter with a third party before the registration of the company’s Memorandum, it can be rescinded by the promoters. The third party cannot sue the company for the acts of the Promoters before the registration of the Memorandum. The promoter is bound to follow some fiduciary duties wherein he must not make any secret profit out of the promotion of the company. He can make profits in his dealings with the company, provided he discloses these profits to the company and its members. He must make full disclosure to the company of all relevant facts, including any profit made by him in transactions with the company.In case the promoter fails to disclose the profits, made by him in the course of promotion or he knowingly makes a false statement in the prospectus, whereby the person relying on that statement, makes a loss, he will be liable to make good the loss, suffered by that other person. The promoter is liable for untrue statements, made in the prospectus.A person, who subscribes for any shares or debenture in the company on the faith of the untrue statement contained in the prospectus, can sue the promoter for the loss or damages, sustained by him as the result of such untrue statement.There are various steps involved in the process of formation of a company which initializes with the application to the Registrar of Companies (ROC). This process includes making an application, mentioning four names to the registrar of company, after which the ROC runs down a thorough search on the names suggested, ascertaining whether or not these names are already incorporated for other companies so as to avoid any legal and copyright tangles. Then comes the Drafting of documents, wherein the Memorandum of Association (MoA), as per the required forms and schedules, Article of Association (AoA) and Statutory Declaration have to be submitted to the ROC once he clears any one of the suggested names. Once the above mentioned documents are prepared, they must be submitted to the ROC for his approval and consequent registration. If the submitted documents are cleared, a Certificate of Incorporation is issued by the registrar. At this time the company is said to have born and can start with its business.A company is incorporated with the registering of duly signed and attested copy of the Memorandum of Association- which is the basic document- with the Registrar of Companies.

Memorandum of Association:

Also known as the basic Charter of a company, the Memorandum of Association lays down the fundamental and primary objectives of the company, its aims, its purpose, its name and other crucial details. A company cannot be registered under The Companies Act, 1956 without the Memorandum of Association.The Memorandum of Association should be in any one of the forms, specified in the tables B, C, D and E of Schedule 1 to the Companies Act, 1956.

• Form in Table B is applicable in case of companies limited by the shares.
• Form in Table C is applicable to the companies, limited by guarantee and not having share capital.
• Form in Table D is applicable to a company, limited by guarantee and having a share capital.
• Form in Table E is applicable to unlimited companies.

A few Clauses are included in the Memorandum which is mandatory for any company. In the NAME CLAUSE, the name of the company is mentioned. A public limited company must end with the word ‘Limited’ and a private limited company must end with the words ‘Private Limited’. The company cannot have a name, which in the opinion of the Central Government, is undesirable. A name, which is identical with or nearly resembles the name of another company in existence, will not be allowed. A company cannot use a name, which is prohibited under the Names and Emblems (Prevention of Misuse Act, 1950 or use a name, suggestive of connection to government or State patronage. The name of a company may be altered on obtaining prior approval of the Central Government for the altered name, passing a special resolution at a general meeting of the company to that effect and obtaining a new certificate of incorporation, signifying the name change. Then comes the DOMICILE CLAUSE in which the name of the state in which the registered office of company is to be situated, is mentioned. If it is not possible to state the exact location of the registered office, the company must provide the exact address either on the day on which commences to carry on its business or within 30 days from the date of incorporation of the company, whichever is earlier. Notice in Form no 18 must be given to the Registrar of Companies within 30 days of the date of incorporation of the company. The OBJECTS CLAUSE is the most important clause of the company. It specifies the activities which a company can carry on and which activities it cannot carry on. The company cannot carry on any activity, which is not authorized by its MA. This clause must specify the main objects of the company to be pursued by the company on its incorporation; Objects incidental or ancillary to the attainment of the main objects; and any other objects. In case the companies, other than trading corporations whose objects are not confined to one state, the states to whose territories the objects of the company extend must be specified.In the LIABILITY CLAUSE, a declaration that the liability of the members is limited in case of the company limited by the shares or guarantee must be given. The Memorandum of a company, limited by guarantee, must also state that each member undertakes to contribute to the assets of the company such amount not exceeding specified amounts as may be required in the event of the liquidation of the company. A declaration that the liability of the members is unlimited in case of the unlimited companies must be given. The effect of this clause is that in a company, limited by shares, no member can be called upon to pay more than the uncalled amount on his shares. If his shares are already fully paid up, he has no liability towards the company. However, there are certain exceptions with regards to the rule of limited liability of member. If a member agrees in writing to be bound by the alteration of MA / AA, requiring him to take more shares or increasing his liability, he shall be liable up to the amount agreed to by him. If every member agrees in writing to re-register the company as an unlimited company and the company is re-registered as such, such members will have unlimited liability. If to the knowledge of a member, the number of shareholders has fallen below the legal minimum, (seven in the case of a public limited company and two in case of a private limited company) and the company has carried on business for more than 6 months, while the number is so reduced, the members for the time being constituting the company would be personally liable for the debts of the company, contracted during that time.According to the CAPITAL CLAUSE, the amount of share capital with which the company is to be registered, divided into shares must be specified, giving details of the number of shares and types of shares. A company cannot issue share capital, greater than the maximum amount of share capital, mentioned in this clause, without altering the memorandum.In the ASSOCIATION CLAUSE, a declaration by the persons for subscribing to the Memorandum that they desire to form into a company and an agreement to take the shares place against their respective name must be given by the promoters.

Article of Association:

The Articles of Association (AA) contain the rules and regulations of the internal management of the company. The AA is nothing but a contract between the company and its members and also between the members themselves that they shall abide by the rules and regulations of internal management of the company, specified in the AA. The provisions of the AA must not be in conflict with the provisions of the MA. In case such a conflict arises, the MA will prevail. Normally, every company has its own AA. If a company does not have its own AA, the model AA specified in Schedule I – Table A will apply. A company may adopt any of the model forms of AA, with or without modifications. The articles of association should be in any one of the forms, specified in the tables B, C, D and E of Schedule 1 to the Companies Act, 1956. However, a private company must have its own AA. The AA contains powers, duties, rights and liabilities of Directors, Powers, duties, rights and liabilities of members, Rules for Meetings of the Company, Dividends, Borrowing powers of the company, Calls on shares, Transfer & transmission of shares, Forfeiture of shares, Voting powers of members, etc.A company can alter any of the provisions of its AA, subject to provisions of the Companies Act and subject to the conditions, contained in the Memorandum of Association of the company. A company, by special resolution at a general meeting of members, can alter its articles subject to the condition that such alteration does not have the effect of converting a public limited company into a private company, unless it has been approved by the Central Government.The documents to be filed in this connection are the MA & AA, an agreement, if any, which the company proposes to enter into with any individual for appointment as its managing director or whole-time director or manager and a statutory declaration in Form 1 by an advocate, attorney or pleader, entitled to appear before the High Court or a company secretary or Chartered Accountant in whole – time practice in India, who is engaged in the formation of the company or by a person, who is named as a director or manager or secretary of the company that the requirements of the Companies Act have been complied with in respect of the registration of the company and matters, precedent and incidental thereto.In addition to the above, in case of a public company, a written consent of directors in Form 29 to agree to act as directors, Details of the directors, managing director and manager of the company in Form 32, Certificate of Incorporation, The complete address of the registered office of the company in Form 18 must be filed.Once all the above documents have been filed and they are found to be in order, the Registrar of Companies will issue Certificate of Incorporation of the Company. This document is the birth certificate of the company and is proof of the existence of the company. Once this certificate is issued, the company cannot cease its existence unless it is dissolved by order of the Court.

After registration, a public limited company can directly start its business, but a private company can only start its business activities once it gets a Certificate of Commencement of Business.