Doing Business in India - RSM Austria

CHAPTER 3
BUSINESS ENTITIES
1.0 FORMS OF BUSINESS ENTITIES
The principal forms of business organizations in India, apart from government
organizations and sole proprietary concerns are:
i. Companies - public and private
ii. Branches of foreign companies
iii. Liaison/Branch/Project offices of foreign companies
iv. Partnerships
v. Trusts
vi. Limited Liability Partnerships (LLP)
1.1 Companies
At present, the legislative provisions governing companies are contained in the
Companies Act, 1956.
Companies in India are broadly classified into public sector companies’ viz. with
predominant government shareholding and private sector companies’ viz. with
predominant private shareholding. Private sector companies may further be
classified as public limited companies or private limited companies. Companies can
also be classified into companies limited by shares, companies limited by guarantee
and unlimited liability companies. However, for business purposes, generally
companies limited by shares are used and consequently, the discussion regarding
companies in this guide is pertaining to such companies. The shares of public
companies may or may not be listed on stock exchanges in India. (e.g. The National
Stock Exchange of India Ltd (NSE), Bombay Stock Exchange Ltd (BSE), etc.) The
regulatory provisions for private limited companies are less stringent than those
relating to public limited companies. Public limited companies whose shares are
listed on stock exchanges are subject to the regulations of the Securities and
Exchange Board of India (SEBI) and the respective stock exchanges.
Private companies that are subsidiaries of public companies (i.e. where
shareholding of Public companies is more than 50%) are however treated at par
with public companies.
Shares of public limited companies are freely transferable, whereas it is subject to
restrictions in case of private limited companies. However, transfer of shares to nonresidents
is regulated by Foreign Exchange Management Act, 1999.
The system of depository has been introduced by the Depositories Act and
Securities Exchange Board of India (Depository & Participants) Regulations, 1996
which has smoothened the transfer of shares in case of listed companies.
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DOING BUSINESS IN INDIA