FDI boosters on cards

The government is considering a series of measures to liberalize the country’s foreign direct investment (FDI) policy.

As part of this, it is looking at permitting 26 per cent FDI in insurance broking through the automatic route, which would mean a nod from the Foreign Investment Promotion Board (FIPB) would not be necessary.

The Department of Economic Affairs has also suggested that activities covered under the non-banking financial company list be enlarged to include financial services such as insurance agencies and services auxiliary to insurance. It is also seeking to allow up to 100 per cent FDI in commodity broking under the automatic route, subject to certain capitalization norms.

Many of these proposals would be incorporated in the consolidated FDI policy, which is modified every six months. The latest version is expected soon.

In a major boost to FDI in wholesale retailing, the government is set to clarify the definition of a group company. Under the definition, group companies would mean two or more enterprises that directly or indirectly are in a position to exercise 26 per cent or more of the voting rights of another company, or can appoint more than 50 per cent of the members of the board of directors.

Walmart had approached the government for a clarification on the definition of what constituted a group.

The government had earlier scrutinized the relationship between Bharti Walmart - a 50-50 joint venture for cash-and-carry between the Bharti group and Walmart - and Bharti Retail - a wholly owned front-end retail company of the Bharti group.

Branded international retail stores in the fashion and jewellery businesses have been stymied from setting up stores through the single-brand retailing window due to a clause that makes it mandatory for these to sell only those products “which are branded during manufacture”. The government is planning to put a clarificatory guideline exempting such firms from this rider.

The government is also looking at permitting a foreign company that has picked up the entire stake in a pharma company to make additional investment through the automatic route, but with a few riders. It can now infuse fresh capital or convert external commercial borrowing in the Indian company into equity without going to the FIPB every time. But the money invested must not be used for acquisition of a domestic pharma company.

Foreign route

ü      What the government is planning

ü      26% FDI in insurance broking through the automatic route

ü      Up to 100%  FDI in commodity broking under the automatic route

ü      Clarify what is a group company in policy on FDI in wholesale trading

ü      Exempt single-brand retailers in jewellery from selling only products “which are branded during manufacture”

ü      Permit a foreign company that has picked up 100% stake in an existing pharma firm to make additional investment through the automatic route, but with a few riders

ü      Warrants and partly paid shares to be allowed as instruments of FDI

Courtesy: Surajeet Das Gupta

Guide to Incorporate Company in India

For setting up a business establishment in India, first step is to incorporate a company whether a private limited or a public limited, which includes:

ü      obtaining director identification number (DIN),

ü      obtaining digital signature certificate,

ü      reserving the company name with the Registrar of Companies (ROC),

ü      paying stamp duties

ü      filing all incorporation forms and documents  and

ü      obtaining the certificate of incorporation.

Thereafter, it is required to get the other necessary formalities done such as:

ü      Company seal

ü      Permanent Account Number (PAN).

Based on the nature of business, it may further be required to obtain a

Tax Account Number (TAN) come taxes deducted at source (TDS).

Subsequently, depending upon the nature of business additional requirements may include

ü      registration for Value Added tax (VAT),

ü      registration with Employees' Provident Fund Organization,

ü      registration for medical insurance (ESIC)

For incorporating a company in India, there is a series of steps required for incorporating a private or public limited company in India. These steps work according to the guidelines provided by The Company’s Act, 1956.

1. The very first step of formation for incorporating a company is to get the name of the company registered at the Registered of Companies (ROC) in the territory of the company’s registered office. The company’s name should not match any existing name. ROC at least takes a week from the date of registration of the name to assure that the name does not exist before.

2. After the completion of this process, the company has to file a Memorandum of Association and Articles of Association with ROC itself. For a public company, the company’s name should end up with “Limited” and for a private company; the company’s name should end up with “Private Ltd”.

3. After submitting the Memorandum of Association and Articles of Association, ROC issues an incorporated certificate only after receiving a mandatory registration fees.

4. After these steps, the next main step is to get the address of the registered office. It is not mandatory for the registered office to be the same building from where all the work is being carried out.

5. Foreign companies need to fill up a FNV-5 form with the Reserve Bank of India to get the permission to start the manufacturing and trading activities in India without an Indian partner. Any Indian or foreigner can be the director of a company in India. Any person whether he/she is Indian or foreigner and any Indian company or foreign company can be shareholder of an Indian company.

6. For incorporating a Public Company, a minimum of three directors and seven shareholders are required and for incorporating Private Company, a minimum of two directors and two shareholders are required.

7. After the registration and certification, each company needs to designate an Auditor. He has a very important duty to perform in the company. All the balance sheets, company’s documents and company’s meetings are scrutinized by him.

8. Every company should have an account book and written records of all the directors, shareholders and the employees. Account book takes care of all income, including profits and losses and the records register takes care of all the past and present work of the people associated with the company.

9. At last, each company should have a different logo, and a stamp of that logo which is imprinted on each written record and each written document of the company. 

Agarwal and Company Law Offices LLP.

Simplifying Procedure in External Commercial Borrowings

A. P. (DIR SERIES) CIRCULAR NO. 11, DATED 7-9-2011 simplifying procedure in External Commercial borrowings as below :

1. As per the extant ECB procedures, any request for change of the lender for an existing ECB is required to be referred by the Authorised Dealer Bank to the Reserve Bank for necessary approval.

2.As a measure of simplification of the existing procedures, it has been decided to delegate powers to the designated AD Category-I banks to approve the request from the ECB borrowers with respect to change in the recognized lender when the original lender is an international bank or a multi-lateral financial institution (such as IFC, ADB, CDC, etc.) or a regional financial institution or a Government owned development financial institution or an export credit agency or supplier of equipment and the new lender also belongs to any one of the above mentioned categories, subject to the Authorised Dealer ensuring the following conditions:-

(i) the new lender is a recognized lender as per the extant ECB norms;

(ii) there is no change in the other terms and conditions of the ECB; and

(iii) the ECB is in compliance with the extant guidelines.

3. However, changes in the recognized lender in case of foreign equity holder and foreign collaborator will continue to be examined by the Reserve Bank.

4. The changes in the recognized lender should be promptly reported to the Department of Statistics and Information Management, Reserve Bank of India in Form 83.

5.The above modifications to the ECB guidelines will come into force with immediate effect. All other aspects of the ECB policy, such as, USD 500 million limit per company per financial year under the automatic route, eligible borrower, end-use, all-in-cost ceiling, average maturity period, pre-payment, refinancing of existing ECB and reporting arrangements shall remain unchanged.

(The directions contained in this circular have been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions/approvals, if any, required under any other law.)