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BE/U2 Topic 2 Legal framework in India

An effective regulatory and legal framework is indispensable for the proper and sustained growth of the company. In rapidly changing national and global business environment, it has become necessary that regulation of corporate entities is in tune with the emerging economic trends, encourage good corporate governance and enable protection of the interests of the investors and other stakeholders. Further, due to continuous increase in the complexities of business operation, the forms of corporate organizations are constantly changing. As a result, there is a need for the law to take into account the requirements of different kinds of companies that may exist and seek to provide common principles to which all kinds of companies may refer while devising their corporate governance structure.

The important legislations for regulating the entire corporate structure and for dealing with various aspects of governance in companies are Companies Act, 1956 and Companies Bill, 2004. These laws have been introduced and amended, from time to time, to bring more transparency and accountability in the provisions of corporate governance. That is, corporate laws have been simplified so that they are amenable to clear interpretation and provide a framework that would facilitate faster economic growth.

Secondly, the Securities Contracts (Regulation) Act, 1956, Securities and Exchange Board of India Act, 1992 and Depositories Act, 1996 have been introduced by Securities and Exchange Board of India (SEBI), with a view to protect the interests of investors in the securities markets as well as to maintain the standards of corporate governance in the country.

Legal Framework of Doing Business in India

Legal Framework of Doing Business in India is intended to provide foreign investors and their advisors a broad legal perspective on foreign investment in India. The guide is written in general terms and its application to specific situations will depend on the particular circumstances involved. It summarizes all major foreign investment regulations and procedures that are currently in force in India. It has been prepared in order to facilitate multinational companies, start-ups and venture capital investor’s set-up business operations in India and includes valuable regulations, forms and policies for ready reference of entrepreneurs and senior managers of foreign entities. It also includes a step-by-step guide to compliance and filings of forms in India. The information in this guide is accurate as of March 20, 2014.

Citizens of India have the option to set-up their business operations either in the form of incorporated entities, (a company or limited liability partnership) or unincorporated entities like a sole proprietorship. On the other hand, a foreign company opting to enter India can do so either by incorporating a wholly owned subsidiary (“WOS”) or by way of joint venture collaboration with an Indian company (“JV Company”). For registration and incorporation of WOS or JV Company, one would first need to incorporate an Indian company and then file an application with Registrar of Companies (“ROC”). The WOS and JV Company will be subject to Indian laws and regulations as applicable to other domestic Indian companies.

Additionally, a foreign company not opting to be incorporated in India, either by way of a JV Company or WOS, is permitted to conduct its business operations through any of the following offices, namely i) liaison office, also known as a representative office; ii) branch office; or iii) project office. Such offices can undertake activities permitted to them under the regulations framed by Foreign Exchange Management Act, 1999 (“FEMA”) for such offices. The approvals for these offices are accorded by the Reserve Bank of India (“RBI”) on a case-to-case basis.

The Government of India is making all efforts to attract and facilitate foreign direct investment (“FDI”) from abroad including investment from non-resident Indians (“NRIs”) to compliment and supplement domestic investment. To make the investment attractive, returns on them are freely repatriable subject to certain legislative restrictions. In addition to approval for bringing FDI in India, many other clearances and approvals, such as registration of company, environment and land related clearances, permission for import of plant and machinery, land acquisition etc are required for starting a business in India.

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