Setting up most businesses requires a com mon set of policies to be understood. Here we describe them step by step. We also explain the specific issues involved in setting up software laws and call centers.

FORMING A COMPANY

1. REGISTER THE COMPANY

The first thing you need to do to set up a software project or call center, or in fact any business, in India is to form a company. The Companies Act 1956, sets down rules for establishing public and private companies. The most common corporate form is the limited one, and not the unlimited company. It is formed only after registering the Memorandum and Articles of Association with the ROC (Registrar of Companies) of the state in which your company’s main office will be located. These are the most important documents that you will submit to the ROC.

The Memorandum sets out the constitution of the company (name of the company, the nature of liability of its members), and includes its objects (the purpose for the formation of the company, the parameters within which it has to carry out its activities). The company cannot do any act that is outside the object of the company even if all the shareholders approve it unanimously. The Articles of Association are the rules and regulations for managing the company’s internal affairs and for achieving its specified objects and purposes.

2. GET THE COMPANY’S NAME APPROVED
You then send your company’s name to be approved by the ROC in the state/Union Territory in which you will maintain its registered office. The approval is subject to certain conditions—no existing company should have the same name, and the name must incorporate the words “Private Ltd” at the end, if a private company, and “Limited” if public.

3. PAY A REGISTRATION FEE
Next you pay a registration fee, scaled according to the company’s share capital, which is stated in its Memorandum. Once you obtain all the documents described in Step 1 and the registration fee, the ROC grants the certificate of incorporation to you (the applicant).

4. INVITE SUBSCRIPTION TO SHARE CAPITAL
Once you get the certificate of incorporation, if yours is a private company, you can start business. If yours is a public company, you can invite the public for subscription to your share capital. In accordance with the Companies Act, you must issue a prospectus, giving information about your public company. The prospectus must be filed with the ROC before issuance to the public. But if you decide to obtain capital privately, you can file a “Statement in Lieu of Prospectus” with the ROC. You can start business after attaining a Certificate of Commencement of Business from the ROC.

5. SEEK FDI AND FOREIGN TECHNOLOGY COLLABORATION
For both private and public companies, you look for FDI (Foreign Direct Investment) and investment from NRIs (Non Resident Indians), including OCBs (Overseas Corporate Bodies), predominantly owned by NRIs, to complement and supplement domestic investment. You also seek foreign technology collaboration agreements.
FDI and foreign technology collaboration are are approved either through the automatic route (no prior government approval is necessary) under powers delegated to the RBI (Reserve Bank of India), or the government (government approval is necessary).

Automatic approval FDI

With the government committed to an early implementation of the second phase of reforms and further liberalizing the FDI regime, all items/activities are under the automatic route for FDI/NRI and OCB investment, except the following: 
Proposals that require an Industrial Licence, including items requiring Industrial Licence under the Industries (Development and Regulation) Act, 1951; more than 24% foreign investment in the equity capital of units manufacturing items reserved for small-scale industries; and items requiring an Industrial Licence under the locational policy notified by the Government, in the New Industrial Policy, 1991

• Proposals where the foreign collaborator has a previous venture/tie-up in India 
• Proposals relating to share acquisition in existing Indian companies, by a foreign/NRI/ OCB investor
• Proposals falling outside the notified sectoral policy/caps or under sectors where FDI is not permitted and/or where the investor chooses the FIPB and not the automatic route.
• Proposals for investment in public-sector units, or EOU/EPZ/EHTP/STP units, would be in the automatic route, subject to the above parameters.

Foreign technology collaboration agreements

The RBI also gives automatic permission for foreign technology agreements in all areas of electronics provided the technology price does not exceed $2 million and royalty payments don’t exceed 5% of domestic sales and 8% of exports.

Payments are subject to an overall ceiling of 8% of total sales, over a 10-year period from the date of agreement, or a 7-year period, from the date of starting production, whichever is earlier. Investment applications under the automatic process are made to the RBI and approved within three weeks.

However, automatic route for technology collaboration is not available to those who have, or had any previous technology transfer/trade-mark agreement in the same or allied field in India.

Government approval

The FDI/foreign technology collaboration agreement proposals, which don’t conform to the automatic-approval guidelines, require government approval through the FIPB. The government has set up a special FIPB as a fast track mechanism to invite and facilitate foreign investment in large projects, considered beneficial for India, but are not covered by the automatic-approval process and norms under which SIA (Secretariat for Industrial Assistance) is authorized to grant investment approvals.

Investment proposals outside the purview of the RBI

Other proposals including those in the services sector that don’t conform to the guidelines for automatic approval, or seek higher foreign equity investment are approved by SIA (Industry Ministry).

Employing foreign software professionals

To employ foreign software professionals you must get the approval of FRPO (Foreign Regional Registration Office), Ministry of Home. Since, India does not issue work visas, you’ll have to get short term (tourist/business visas) or long-term visas. So for the foreign professional, consultants or employees, staying beyond 182 days, with an intention of working, or employed, or carrying out business, it becomes a big issue of tax liability. In that case, the global income of the expatriate is open for scrutiny under the Indian tax laws. They would have to obtain tax orders to avoid being doubly taxed under Indian tax laws, and their respective countries. India has a double taxation avoidance agreement with many countries.

Samyadip Chatterji is a corporate lawyer