This post focuses on the aspect of incorporation of a foreign entity in India, involving the presence of a Resident Office and the challenges faced by the same. Via this blog post, we aim to elucidate the challenges faced and their suggested solutions, which can be effectively undertaken for doing business in India.
Legal Provisions That Became Challenges:
As per the provisions of Section 12 of the Companies Act 2013 (“the Act”) read with Rule 25 & 27 of the Companies (Incorporation) Rules 2014, a company is compulsorily required to have a registered physical address, i.e. a registered office address in India within 30 days as per Companies (Amendment) Act 2017 from the date of incorporation. In compliance with these provisions, a company is required to submit any of the following documents evidencing the existence of the registered office premises:
1. the registered document of the title of the premises of the registered office in the name of the company; or
2. the notarized copy of lease/rent agreement in the name of the company along with a copy of rent paid receipt not older than one month; and
3. the authorization from the owner or authorized occupant of the premises along with proof of ownership or occupancy authorization, to use the premises by the company as its registered office; and
4. the proof of evidence of any utility service like telephone, gas, electricity, etc. depicting the address of the premises in the name of the owner or document, which is not older than two months.
In this regard, a Company usually experiences the following challenges:
At the time of incorporation, the proposed entity is required to inform the Registrar of Companies (“ROC”) regarding its proposed registered office premises along with other relevant documents. Since the company is under incorporation, it is legally not permissible to enter into any valid contract in its own name. However, to comply with legal requirements, it is necessary to provide an ownership & address proof of such registered office premises. a major challenge of how to take a registered office address prior incorporation of the company.
It is suggested that the proposed director/promoter of the entity can take a temporary space in the city where the registered office was proposed to be situated by entering into an oral/ written agreement for lease with the owner of the premises. Since the company is under incorporation, such address can be mentioned in the incorporation forms which are required to be filed with ROC.
After the incorporation, a company can execute an agreement with the owner of the premises in its own name and the details of the said registered premises can be submitted with ROC by filing relevant forms within stipulated time as prescribed under the Act.
Also, it may be suggested that the proposed company can take virtual office from the other companies who provide the space for the registered office for setting up their business in India.
There are instances where the registered office premises are finalized but since the company is under incorporation, agreement cannot be executed in its own name and hence, obtaining the No Objection Certificate (“NOC”) from the landlord /owner along with the address proof i.e. Utility Bill in support thereof becomes a time-consuming process. This is usually the case when the owner is not in direct contact with the client for these matters.
In these cases, it is suggested that requirement of NOC along with the copy of the Utility Bill may be discussed with the owner of the premises at the time of their initial conversation so that the owner is aware of all the requirements. Further, once the name of the proposed entity is approved, the draft NOC based on the information provided by the client can be shared beforehand and said documents may be followed up rigorously so that the office premises can be smoothly registered in ROC records.
In case the ownership of the premises is in the name of another Company, in such cases, a “Board Resolution” passed at the meeting giving authority to the proposed Company for use of the premises is required to be given. In most cases, it is not possible for the lessor Companies to schedule a board meeting specifically for this purpose and this leads to delay in registration of office premises with ROC.
It is suggested to the client that requirement of “Board resolution” along with the NOC may be discussed with the owner at the time of their initial conversation. In case, a board meeting is to be scheduled soon after the finalization of the place, an agenda item for this authorization can be taken up along with other items. In those cases, where physical board meeting cannot be held due to some reasons for this specific agenda, it is suggested that the resolution be passed through circulation.
If there is any discrepancy between registered address mentioned in the utility bill and address mentioned in the ownership documents, then objection is usually raised by the ROC for the said difference which may lead to delay in registration of office premises.
In such situations, it needs to be ensured that the address mentioned in both the ownership proof and the utility bill are same. In case of variation, it is suggested to get the utility bill altered to reflect the complete and correct address of the premises as per the ownership proof documents to avoid any hassle or delay. Further, these things can be checked and verified before incorporation of the company and discrepancies can be resolved at the earliest.
On that note, we conclude this post and hope it serves of some value to the foreign entities which aim to do business in India.
The next post in this series will be focusing on the topic of execution of documents in case of foreign subscribers/directors.
Written by Amrita Deol
Amrita is an Assistant Manager in the Corporate Secretarial Services team at Coinmen Consultants LLP.