GUEST AUTHOR

14 APRIL 2016

LEGAL TALK

What are the compliance requirements to do business in India

As an emerging market, India is one of the biggest and fastest growing economies in the

world today. According to a report, India is cited as having the potential to become the

third largest economy in the world within the next 30 years, behind only China and the

USA. The “Make in India” campaign coupled with other initiatives taken by the Ruling

Government, like “Skill India”, “Digital India”, etc., has stirred huge interest among various

domestic and overseas stake holders (predominately, the startups!).

With the kind of growth story India has to share, entering the Indian market will prove to be

very promising and beneficial for budding entrepreneurs and startup companies in the

coming years.

Having said that, conducting business in India would require keen ability to understand

some complex and some not so complex realities associated to this country (bearing in

mind the evolving policies of the Government, amendments to the existing statues and

new laws enacted in the recent times).

Our endeavor in this article is to broadly highlight one such facet of realities concerning the

statutory, regulatory compliances, and the possible precautionary measures that the

entry-level players should keep in mind while doing business in India, with more focus on

the requirements under the Companies Act, 2013 (New Companies Act) and then on

some other key legislations.

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Requirements under the New Companies Act

Companies incorporated in India are primarily regulated by the recently enacted New

Companies Act.

The New Companies Act, amongst other provisions, lays down the detailed provisions

regarding qualification, appointment, remuneration removal, retirement of directors,

conducting board and shareholders meetings, passing of resolutions, related party

transactions, the maintenance of books of accounts and the preparation and presentation

of annual accounts (matters to be reported upon in the annual reports of the companies),

periodical filing of forms with the Registrar of Companies, etc.

Once all the legal formalities required for incorporation are completed and the certificate

of incorporation is issued to the company, the company is recognised as a separate legal

entity in the eyes of law, distinct from its members who have incorporated such entity.

Whether the company is a private company or a public company, several things are

required to be done post incorporation. There are matters which are required to be

undertaken in the first Board meeting immediately post incorporation, and then there is

work which is required to be done on regular and periodical basis.

A company does its business through directors who are responsible to ensure the above

compliances.

As soon as the company is incorporated, but no later than 30 days, a director should call

for the first board meeting by issue of notice (together with the agenda) of the meeting at

least seven days before the meeting. A number of matters then need to be resolved upon

in this first board meeting.

The company must also have the name board outside the registered office address, with

its name, registered office address, Company Identification Number, e-mail ID, and phone

number (which are mandatory now), website address and fax number, if any, stated on it.

These details are also required to be printed on all business letters, bill-heads, and all other

official publications.

If PAN has not been applied for along with the incorporation, then immediately after

incorporation, the company must apply for PAN and TAN.

The company has to convene regular board meetings in the calendar year and prepare the

minutes of the meeting of the Board of Directors and the shareholders meeting, and the

same has to be maintained as a permanent document till the life time of the company.

Within 30 days from the meeting, the minutes have to be prepared, duly signed, and

maintained in a minute’s binder. Like the same way on allotment of shares, the company

has to issue share certificates to those who have been allotted shares and the company

has to maintain members register and share allotment register.

A company is required to file its balance sheet, profit and loss account, auditor’s report,

and annual return every financial year before the due date, with the Registrar of

Companies.

In addition to that, there are several instances wherein the company has to intimate the

concerned Registrar of Companies, on the timely basis, about the appointments of

directors, removal and certain other changes in the prescribed manner.

The New Companies Act has also introduced the CSR (Corporate Social Responsibility)

provisions where the corporate entities are obligated to undertake certain philanthropic

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activities. All companies which satisfy the CSR criteria will have to undertake CSR

activities during the given financial year.

The above compliance requirements under the New Companies Act, which a company

must comply, is not a comprehensive list. Some companies may also require registration

for service tax, VAT, professional tax, shops, and establishment. It is pertinent to note that

the responsibility of compliance is not a one-time affair, but in fact a continuous process.

Requirements under the Labor and Employment Legislation

Next, businesses with production lines, factories, would also have to consider and comply

with a host of statutes such as the Employees’ State Insurance Act, 1948; the Maternity

Benefits Act, 1961; the Industrial Disputes Act, 1948; The Contract Labor (Regulation and

Abolition) Act, 1970; the Trade Union Act, 1926; the Equal Remuneration Act, 1976; the

Payment of Gratuity Act, 1972; the Workmen’s Compensation Act, 1923’ the Employees’

Provident Funds and Miscellaneous Provisions Act, 1952, etc.

The above statutes govern issues such as working time and conditions of employment of

workers, minimum wages and remuneration, rights and obligations of the trade unions,

insurance of the employees, maternity benefits, employment retrenchment, payment of

gratuity/provident fund, payment of bonus, regulations of the contract labor and such

other issues concerning the employees.

The company should ensure that proper compliances of these various statues vis-à-vis its

employees are in place and the employee policies are formulated accordingly.

Requirements under the Environmental Law

Environmental and pollution control matters are governed by various statutes such as the

Environment (Protection) Act, 1986; the Water (Prevention and Control of Pollution) Act,

1974; the Air (Prevention and Control of Pollution) Act, 1981; Hazardous Wastes

(Management, Handling and Trans boundary Movement) Rules, 2008; the Manufacture,

Storage and Import of Hazardous Chemicals Rules, 1989; the Indian Forest Act, 1927; the

Forest (Conservation) Act, 1980; the National Environment Tribunal Act, 1995; the Public

Liability Insurance Act, 1991, etc. A company is required to comply with the provisions of

these environmental laws to the extent specifically applicable to the business operations of

such company. Consequences of non-compliance with the relevant provisions of any such

statutes and rules framed there under are provided in the respective statutes.

Tax and stamp duty

India has a federal tax structure and taxes are levied by the Central Government, the State

Governments, and the local regulatory authorities. These taxes are broadly in the nature of

(i) Direct Tax (which includes income tax, wealth tax, dividend distribution tax, minimum

alternate tax (MAT), share buy-back tax), (ii) Indirect Tax (which includes VAT/CST,

Service Tax, Excise Duty, Customs Duty, Entry Tax, R&D Cess), and (iii) Levies on

transaction (which includes stamp duty, securities transaction tax, and commodity

transaction tax).

All the Indian companies are subjected to payment of tax and stamp duty for their

business transactions undertaken during the course of any financial year and on the

income generated from such operations. Non-payment (inadequate and/or untimely

payment) of tax and stamp duty may attract moderate to heavy penalty, cause

enforceability issue of the document and, in some cases, impounding of the documents by

the authority.

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Concluding thoughts

While the above lays down the general laws governing a company in India, local laws also

play a very important role. As such depending in which state the company is registered or

state and city in which its operations are conducted, the company must be mindful of and

adhere to the laws of such state/ city.

Over the past several years, the policy and procedures regulating and governing the Indian

corporation have been progressively liberalised and simplified. However, there are several

compliances requirements that need to be adhered to, failing which there could be

consequences of disqualification of directors, attracting of penal provisions and in some

cases even imprisonment of the directors and key personnel.

(Disclaimer: The views and opinions expressed in this article are those of the author and do

not necessarily reflect the views of YourStory)

About the guest authors:

Amish Shroff : As a principal associate, Amish  is currently a part of the Corporate

Commercial and Project Finance Team. Amish passed his L.L.B. examination in the year

2007 and carries with him an experience of eight years. His interest lies in reading,

listening to music and travelling.

Purvi Kapadia : Purvi Kapadia is a partner at Rajani Associates who primarily handles the

private equity practice of the Firm. Having passed her LL.B. examination, with a gold

medal, in 2002, Purvi carries with her an experience of over 13 years. She passed the

Solicitors examination conducted by the Bombay Incorporated Law Society in October

2004.

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