In India, a shelf company is defined as a legal entity that has already been incorporated under the Commercial Law. The shelf company, also referred to as a ready-made company, does not perform commercial activities, but it is available for sale and, if purchased, the investors will be able to start their business activities much faster than in the case of the standard registration procedure.
Purchasing a shelf company can be an attractive way of starting a company in India, as the time frame in which the businessman can start his or her commercial operations is much lower compared to the regular registration, since the legal entity has already been registered with the local institutions.
As a general rule, a company can be incorporated in India in a period of minimum 16 weeks, while in the case of a shelf company, the purchase procedures can be completed in 10 days. Our team of specialists in company formation in India can offer assistance on the main procedures that have to be completed when buying a ready-made company.
What are the main types of shelf companies in India?
Foreign businessmen who want to open a company in India have two main options related to the ready-made companies. The first one is to purchase a new shelf company, which designates a legal entity that has been incorporated in India, but has never conducted business activities.
The other option would be to purchase an old shelf company. This type of ready-made company is different from the first one in the sense that its founders have conducted business activities. If the investors will opt for the second option, it is necessary to conduct corporate due diligence procedures, through which the buyers will verify if the legal entity has any hidden flaws and, in this sense, it is advisable to receive legal assistance from our team of agents in company registration in India.
Why start a business activity through an Indian shelf company?
One of the most compelling arguments for those interested in opening an Indian business through a shelf company is defined by the fact that the time spent with the procedure of company formation in India is no longer required. Besides this basic advantage, the shelf company can also be advantageous due to the following:
- it represents the fastest way for an investor to enter various agreements;
- the company already benefits from a corporate bank account and registration with the tax authorities;
- it provides the advantage of offering a solid corporate image, given by the longevity of the business;
- it implies a lower level of bureaucracy and the company’s representatives can hire employees faster.
What are the procedures related to starting a shelf company in India?
Businessmen interested in how to form a company in India through a ready-made company will still have to conclude several legal requirements. For example, one of the crucial aspects will be to sign a document that will state the change of ownership from the previous owner to the new purchaser (by signing the share transfer agreement).
An important matter that has to be resolved is to obtain a Director Identification Number for the directors appointed by the new owners of the company. Following the applicable legislation, the appointed directors will have to obtain a Digital Signature and our team of consultants in company registration in India can provide further information regarding this matter.
As mentioned above, the shelf company already has a designated corporate bank account but, in the situation in which the investors will want to change the company’s name (a procedure to which they are entitled to), this change must also be reflected in the details of the bank account. This modification has to be registered with the Registrar of Companies in India as well. Once the company starts trading, it will become liable for taxation. Depending on the annual turnover and the business field in which it operates, it can also become liable for the payment of the VAT.
As a general rule, the investors should be present in the country during the purchase procedure, but certain steps can be easily completed by our team of specialists in company formation in India, provided that the investors have offered all the necessary documents and have signed a power of attorney.
What are the advantages of a shelf company in India?
One of the main advantages of the ready-made company in India is that the legal entity has all the incorporation documents. When purchasing the ready-made company, the investors will receive the Certificate of Incorporation, the company’s seal and other relevant documents. The buying procedure differs depending on the type of shelf company preferred by the investors (old or new).
In the case of an old shelf company, it is necessary to appoint new directors and to obtain the resignation documents of the previous directors, to sign the share transfer agreement and other specific documents. Investors interested in registering a company in India are invited to contact our team of consultants for further information on the shelf company.