India has experienced rapid economic growth in recent years, and there is no end in sight. For example in the next four years, India’s economy is expected to be larger than that of Germany or Japan. Investments of US$134 billion are planned in the current financial year alone.

German companies can participate in this burgeoning economic boom by expanding their business to the Indian market and setting up their own company in India.

1. The company form “Private Limited Company”

A suitable company form for this—and the most common in India—is the “Private Limited Company,” which is similar in content and structure to a German limited liability company (Gesellschaft mit beschränkter Haftung).

The main feature is that the liability of shareholders is limited to their capital contribution.

2. Requirements for the incorporation

The incorporation requirements differ significantly from a German limited liability company:

• At least two founding shareholders (subscribers)—These founders do not have to be Indian nationals or have their registered office in India. The shareholders may either be individuals or corporate entities. If the company is to be incorporated as a wholly owned subsidiary, one shareholder may be a nominee of the other with minimal shareholding in the company. 
• No minimum share capital required.
• At least two directors—One of these must be a “resident director.” Under Indian corporate law, a resident director can be a person ordinarily resident in India, i.e., someone who has resided in India for at least 182 days in the preceding financial year. In the case of an incorporation during the year, this applies proportionately to the year of incorporation. It is pertinent to highlight here that there is no mandatory Indian citizenship requirement for a resident director; even a foreign national who fulfills the abovementioned residency criteria would be eligible to be appointed as a “resident director” in an Indian company. Every individual who is to be appointed as a director in a company should also have a valid Director Identification Number (DIN) and valid Digital Signature Certificate (DSC).

3. Incorporation procedure

The establishment and operation of a private limited company in India is primarily governed and regulated by the Companies Act, 2013 (CA 2013) along with various rules and regulations formulated under it. Companies incorporated in India are strictly regulated and monitored by the Ministry of Corporate Affairs (MCA), part of the government of India, with most states in India having their own Registrar of Companies (RoC) that functions under the MCA. In addition to corporate laws, entities that were incorporated using foreign investment are also required to comply with the provisions of Indian foreign exchange laws.

The incorporation takes place in several steps:

1. Preparation of the incorporation involving a determination of possible company names, main objects, determination of the registered seat and business address, determination of proposed directors, shareholders and the shareholding structure of the company, etc.
2. Resolution regarding the formation of an Indian private limited company if a legal entity is involved as a subscriber.
3. Advance reservation of the company name
   • The availability of the company name and the initial incorporation documents are checked by the MCA.
   • If confirmed, the company name is reserved for 20 days and can be extended twice for an additional 20 days each time.
4. Finalization of the incorporation documents (Subscriber Sheets, PAN Undertaking, Form INC-9, consent by directors, etc.), including signing, notarization and apostillation / consularization of relevant documents and submission of the incorporation application on the MCA portal.
5. Opening of a bank account with an Indian bank. Depending on the internal process of the bank being used, the bank account opening may be time consuming. Therefore, required information and documents should be clarified with potential banks in advance.
6. Payment of the capital contribution.

4. Costs incurred

In addition to consulting and registration costs, there are also costs for the incorporation documents. Depending on the number of documents and the required formalities (translation, notarization and legalization), these can amount to a four-figure euro sum.

5. Duration of the incorporation

A company can be set up within around one to two months if you are familiar with the exact procedure of incorporating a company in India.

6. Compliances by the company

Companies are required to complete mandatory periodic filings with the respective returns on invested capital in the prescribed format under CA 2013, for instance, filing of annual returns, financial statements, director’s and auditor’s report, KYC or Know Your Customer form for directors of the company. There are also various event-based reporting requirements, such as reporting of a change, appointment, or removal of directors as well as a declaration of significant beneficial ownership.

In addition, the company is required to maintain updated books of account, registers, minutes of meetings and hold periodic board meetings and annual general meetings. The accounts of the company must be audited annually and presented before the board for consideration and approval and then adopted by the shareholders in an annual general meeting.

It is pertinent to note that all private companies in India are required to convert physical shares to electronic shares prior to any issue or buyback of shares or transfer by a shareholder by or before June 30, 2025. After this date, any transfer of shares by a shareholder of an Indian private limited company or any issue or buyback of shares by the company may be undertaken only if the shares have been converted into electronic form. The conversion process has to be undertaken with either of the two depositories in India: the National Securities Depository Limited or the Central Depository (Services) India Limited.

7. Summary

Considering India’s economic rise, the establishment of an Indian Private Limited Company is a highly interesting option for German companies.

That said, careful coordination and monitoring of the incorporation process, especially the incorporation documents, is essential to avoid complications and save time.

Together with our colleagues in India, we will be happy to support you in all aspects of setting up a company in India. We are also happy to assist with any other legal questions relating to India.

About Dentons Link Legal

Established in 1999, Dentons Link Legal is a full service corporate and commercial law firm with over 50 partners and 200 lawyers across multiple practice areas. With offices across all major Indian cities and access to more than 160 offices in more than 80 countries of Dentons’ combination firms across the world, Dentons Link Legal is equipped to assist you in achieving your business objectives with the help of a team of experienced, well trained and qualified lawyers. www.dentonslinklegal.com