Compliance Requirements for setting up a company in India

What are the compliance requirements for setting up a company in India? Understanding the compliance requirements for setting up a company in India is crucial for entrepreneurs and businesses looking to establish a foothold in one of the world’s fastest-growing economies. When you setup a company in India, it involves a series of legal formalities, including registration, obtaining licenses, and adhering to tax regulations.

Ensuring compliance is not just about meeting legal obligations; it is integral to maintaining operational efficiency and avoiding potential legal issues. Companies that adhere to compliance norms foster trust among investors and clients, which is crucial for long-term success. From obtaining a Director Identification Number (DIN) to registering with the Goods and Services Tax (GST), the steps to establish a company in India are governed by strict regulatory frameworks to ensure transparency and accountability.

Choosing the right business structure is a critical decision for any entrepreneur because it helps the entrepreneur to setup company in India. Company setup in India choice influences various aspects of your business, including liability, taxation and operational flexibility.

One of the most popular business structures in India, offering limited liability to its shareholders.

Key Features:

• Minimum of 2 and a maximum of 200 members.
• Shareholder’s liability is limited to their share capital.
• Cannot publicly trade shares.
• Requires at least two directors.

It combines the benefits of a partnership with those of limited liability.

Key Features:

• Minimum of two partners, with no upper limit.
• Limited liability protection to partners.
• Less compliance compared to a Private Limited Company.
• Separate legal entity from its partners.

It Offers shares to the general public and is suitable for large businesses seeking significant capital.

Key Features:

• Minimum of 7 shareholders, with no maximum limit.
• Shares can be freely traded on the stock exchange.
• Requires at least three directors.
• Subject to rigorous compliance and disclosure norms.

It is the simplest form of business structure, owned and managed by a single individual.

Key Features:

• Single owner with full control over business decisions.
• No separate legal entity from the owner.
• Unlimited liability for business debts.
• Minimal regulatory compliance.

An OPC is new concept introduced to support entrepreneurs who own a business individually, providing the benefits of limited liability without the need for multiple shareholders.

Key Features:

• Only one shareholder is allowed, who is the sole director and owner of the company.
• The owner’s liability is limited to the extent of their share in the company.
• It is recognized as a separate legal entity.
• No minimum paid-up capital is required to form an OPC.

A partnership firm is a type of business entity where two or more individuals, called partners, come together to operate a business and share its profits and losses.

Key Features:

• Formed through a partnership deed, outlining the roles, responsibilities, and profit-sharing ratio among partners.
• Partners have unlimited liability, meaning personal assets can be used to cover business debts.
• The firm and its partners are considered one and the same in the eyes of the law.
• Simple to establish with minimal regulatory requirements compared to incorporated entities.

The incorporation process involves legally forming a new company or business entity, which typically includes filing necessary documents with the relevant government authorities. This grants the business a separate legal identity from its owners, providing liability protection and other benefits.

It is required for digitally signing the forms submitted to the MCA. The process of obtaining is to apply to a certified DSC issuing authority, such as eMudhra or Sify.

Every director of the company must have a unique identification number. The process of obtaining is to apply for DIN using Form DIR-3 on the MCA portal, submitting proof of identity and address.

Ensures the proposed company name is unique and not already in use. The process of obtaining is to submit the proposed names through the RUN (Reserve Unique Name) service on the MCA portal. The MCA will review and approve the name if it meets all guidelines.

It is the method of Drafting and submission of essential documents to incorporate the company documents required are- 

• Memorandum of Association (MOA): Defines the company’s constitution and scope of activities.
• Articles of Association (AOA): Lays down the internal rules and regulations of the company.
• Form INC-9: Declaration by subscribers and directors.
• Form DIR-2: Consent from the directors.
• Proof of Registered Office Address: Utility bill, rent agreement, or sale deed.
• Proof of Identity and Address for Subscribers and Directors: Aadhaar, passport, voter ID, etc.

Purpose of obtaining the certificate of incorporation is official confirmation of the company’s incorporation. It is issued by the Registrar of Companies (ROC) after verifying all submitted documents and details.

Annual compliance requirements are the mandatory obligations a company must fulfill each year after a company setup in India to remain in good standing with regulatory authorities. These typically include filing annual reports, financial statements, and paying any required fees or taxes.

Once you have completed the compliance requirements for setting up a company in India, maintaining compliance through annual filings is crucial. One of the key requirements is the filing of annual returns using Form MGT-7. Form MGT-7 must be filed within 60 days from the date of the Annual General Meeting (AGM). It includes details about the company’s directors, shareholders, changes in directorship, and other significant corporate changes during the year.

Another essential part of annual compliance for companies is submitting financial statements. This is done using Form AOC-4. Form AOC-4 must be filed within 30 days from the date of the AGM. It includes the company’s balance sheet, profit and loss account, cash flow statement, and auditor’s report.

Conducting an Annual General Meeting is a statutory requirement for every company to ensure shareholders are informed and involved in critical company decisions. The AGM must be held within six months from the end of the financial year, with a maximum gap of 15 months between two AGMs. It typically includes approval of financial statements, declaration of dividends, appointment/reappointment of directors and appointment of auditors.

The maintenance of statutory registers involves keeping accurate and up-to-date records of a company’s key details, such as its shareholders, directors and financial transactions. These registers are crucial for legal compliance, transparency and corporate governance to establish company in India.

• Register of Members: Contains details of all shareholders, including their names, addresses, shareholding,and changes therein.

• Register of Directors and Key Managerial Personnel: Records details of the company’s directors, including their names, addresses, directorships held in other companies, and changes thereto.

• Register of Charges: Documents details of any charges created on the company’s assets, such as mortgages or loans secured against company property.

• Register of Loans, Guarantees, Security, and Investments: Maintains records of loans given, guarantees provided, securities offered, and investments made by the company.

• Minutes Book: Records the minutes of all meetings of the board of directors, shareholders, and committees, detailing the decisions made and resolutions passed.

Director disclosures are crucial for maintaining transparency and adhering to compliance requirements for setting up a company in India. 

• Form MBP-1 (Declaration of Interest): Directors must declare their interest in other companies and entities, including any related party transactions. This declaration must be submitted at the time of appointment and updated whenever there is a change in interest. Information about the director’s shareholding, directorships, and other interests that might conflict with their role in the company.
• Form DIR-8 (Declaration of Non-Disqualification): Directors must declare that they are not disqualified from being appointed as directors under the provisions of the Companies Act, 2013. This declaration should be provided at the time of appointment and annually thereafter. Confirmation that the director meets all qualifications and is not barred from holding directorship under any statutory provisions.

The appointment of auditors is a critical component of the compliance requirements for setting up a company in India. An auditor must be appointed within 30 days from the date of the company’s incorporation. The appointment is made by the Board of Directors at the first Annual General Meeting (AGM). File Form ADT-1 with the Registrar of Companies (ROC) within 30 days of the appointment. This form includes details of the appointed auditor, such as name, address, and their professional qualifications. Auditors are typically appointed for a term of five years, with the possibility of reappointment.

The auditor’s report should provide an opinion on whether the company’s financial statements give a true and fair view of its financial position and performance, in compliance with ICAI auditing standards and the Companies Act, 2013. All material information should be disclosed in the financial statements and any discrepancies or issues identified during the audit must be reported. The auditor’s report must be submitted to the ROC in Form AOC-4 along with the financial statements, ensuring compliance with filing deadlines to avoid penalties.

Adhering to the compliance requirements for setting up a company in India is essential for ensuring legal, operational efficiency and to establish company in India. This involves selecting the appropriate business structure, completing the incorporation process, fulfilling annual compliance obligations, maintaining statutory registers and managing auditor appointments. Staying updated with regulatory changes is crucial as laws and guidelines evolve, affecting how businesses operate. To navigate these complexities effectively and ensure compliance, it is advisable to seek professional assistance, which can provide expert guidance and mitigate risks associated with non-compliance.

The key compliance requirements for setting up a company in India include selecting the appropriate business structure, obtaining a Digital Signature Certificate (DSC) and Director Identification Number (DIN), registering the company name, filing incorporation documents with the Registrar of Companies (ROC), and obtaining a Certificate of Incorporation. Additionally, companies must comply with statutory requirements such as appointing auditors, maintaining statutory registers, and adhering to tax and labor laws for proper company setup in India. 

To incorporate a company in India, the essential documents include the Memorandum of Association (MOA), Articles of Association (AOA), proof of identity and address of directors (such as PAN and Aadhar cards), proof of registered office address, and the subscription sheet with details of shareholders. Additionally, a Digital Signature Certificate (DSC) and Director Identification Number (DIN) for the proposed directors are required. Adhering to requirements will lead to easy company setup in India. 

Annual returns, filed using Form MGT-7, must be submitted within 60 days from the date of the Annual General Meeting (AGM). Financial statements, submitted using Form AOC-4, must be filed within 30 days from the date of the AGM. Adherence to these timelines ensures compliance with the compliance requirements for setting up a company in India.

Companies in India are required to obtain several mandatory tax registrations, including Goods and Services Tax (GST) registration if their turnover exceeds the threshold limit, Permanent Account Number (PAN), and Tax Deducted at Source (TDS) registration.

Compliance with employment laws in India involves maintaining proper employee contracts, adhering to minimum wage regulations and registering with the Provident Fund (PF) and Employee State Insurance (ESI) authorities. Companies must also comply with labour laws, including those related to working conditions, safety and gratuity payments.