Company Incorporation in India: Fees Relaxed, Name Reservation Facility Introduced

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As part of its ongoing commitment to ease doing business in India, the federal government recently further simplified the process for companies setting up in the country.

The new rules intend to encourage the growth of startups and small businesses in India. They preceded the 2018 Union Budget, which reduced the corporate tax rate for domestic MSMEs.

Removal of incorporation fees

With effect from January 26, 2018, no incorporation fees will be required by the Registrar from One Person Companies (OPCs) and small companies whose nominal share capital is less than or amounts to US$15,566.63 (Rs 1 million).

However, the fees to be paid to the state government – Stamp Duty on the company’s Memorandum of Association (MoA) and Articles of Association (AoA) – will remain unchanged.

Those claiming the ‘zero incorporation fee’ benefit must maintain their status of a small company for a period of one year – from the date of incorporation. What this translates into is the maintenance of the company’s authorized capital at below or equal to US$15,566.63 (Rs 1 million).

The relaxation follows from the government’s amendment of the Companies (Registration Offices and Fees) Rules, 2014.

Company name reservation

In January, the corporate affairs ministry (MCA) introduced a new online facility ‘RUN’, which stands for ‘Reserve Your Name’. The RUN form replaces the INC-1 form.

Prior to the RUN form, companies could reserve their name in advance through the INC-1 form or directly via the online incorporation application – Simplified Proforma for Incorporating Company Electronically or SPICe form INC-32. SPICe was launched in October 2016 to provide fast and efficient incorporation services within stipulated time frames, in line with international best practices.

To provide greater ease to stakeholders, the corporate affairs ministry will now allow the submission of two proposed names and one Resubmission (RSUB) while Reserving Unique Names for companies through the RUN. 

Allotment of Director Identification Number

The process of allotting the Director Identification Number (DIN) is revised as well.

The DIN can now be allotted through the combined SPICe form itself at the time of an individual’s appointment as director.

Speedier incorporation process, corporate governance bolstered

The above changes are part of what the Modi government has termed Government Process Re-engineering (GPR) initiatives for making the incorporation process speedier in India, and reduces the number of steps involved in starting a new business.

Previously, the corporate affairs ministry simplified the process for companies applying for their Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN).

The government has also been keen to improve corporate governance in India: the Companies (Amendment) Act, 2017 came into effect on January 4, this year, and the Insolvency and Bankruptcy Code was passed in May 2016. India has also revamped its commercial arbitration regime.

Overall, the reforms target the improvement of India’s Doing Business ranking, which moved 30 spots to 100 in October last year – after being ranked 130 by the World Bank in 2017.

Investors should note that the federal agency – the Department of Industrial Policy and Promotion (DIPP) – now tracks the state-wise implementation of ease of doing business reforms in India.

Currently, the top five ranking states in India – in terms of ease of doing business – are Haryana, Andhra Pradesh, West Bengal, Jharkhand, and Rajasthan.

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