.png)
Equally important as choosing an entity is deciding where to incorporate an entity. The location of incorporation inter alia determines the liability of the founders, tax liability, ease of setting up and compliance costs. Typically, Delaware and Singapore are viewed as favourable jurisdictions to incorporate. Can Indian startups be incorporated in these jurisdictions? What are the pros and cons of choosing a foreign jurisdiction over India for incorporation? Let us find out!
Incorporating in India
In India, the Companies Act (2013) lays down the procedure that has to be followed for the incorporation of a company. The procedure to be followed is as follows:
The first step is to apply for a digital signature, which is required for a number of processes. This process requires a digital signature, so at least one director should obtain a Digital Signature Certificate from a DSC-issuing authority. The Ministry of Corporate Affairs has prepared a list of such authorities.
Next, every Director must ensure that they have a Director Identification Number (“DIN”). This can be obtained by filling a SPICe Form (for new companies).
Now, the process of incorporation begins. The first step is to apply for a name. Up to six potential names have to be chosen (in the order of preference). The name should not resemble any existing name, be violative of The Emblems and Names (Prevention of Improper Use) Act, 1950, and must generally obey Rule 8 of the Companies (Incorporation) Rules, 2014. For registering a name, an INC-1 Form has to be filled and submitted to the respective Registrar of Companies. If the name is rejected, then the process has to be repeated.
If the name is accepted, then Forms 1, 8 and 32 have to be filled and submitted before 60 days from the date of application of validity of name. After this, the incorporation of the Memorandum and Articles of Association has to be completed. The format of the MOA and AOA is mentioned in Tables A and F of Schedule I to the Companies Act. Rule 13 of the Companies (Incorporation) Rules 2014 further lays down the considerations for signature of the MOA and AOA.
Finally, Form No. INC-7 has to be filled for the incorporation of company. Some other forms have to also be submitted for new companies, in line with Rules 14-17 of the Companies (Incorporation) Rules.
Incorporating in Singapore
It is important to note that both Singapore and Delaware permit foreign residents and non-citizens to setup companies, but they require an authorized domestic agent.
The first step is to have the name approved by the Accounting and Corporate Regulatory Authority (“ACRA”), a statutory body under Singapore’s Finance Ministry. The name must not be obscene/vulgar, identical to an existing company, reserved by a previous company, and infringe on trademarks. If the name contains certain keywords, they are referred to another governmental authority who will separately approve the name.
After approval, the name can be reserved for 120 days. For registration, a number of official documents are required to be uploaded. After this, the company is incorporated.
Incorporating in Delaware, USA
The name reservation is the first step. Any reserved name can only be held for 120 days, and reservation of the name can be done online for a sum of 75 USD. Name availability can be checked on the website of the Delaware government.
The next step is to hire a professional registered agent. The website of the Delaware Government contains a list of all registered agents. This is a compulsory requirement, however, if the company is operating out of Delaware it can act as its own registered agent.
Next, forms have to be filled for incorporation. The most important legal document is the Certificate of Incorporation, and includes a number of compulsory requirements. The copies of all these forms are available online, and can also be uploaded online for competition of the process.
Finally, every business has to acquire an Employer Identification Number (“EIN”). This is compulsory for all companies, and can be fulfilled by filling a form on the IRS website.
Let us Compare!
Features | India | Singapore | Delaware |
Company Name Availability | Can be searched for free | Can be searched for free | Can be searched for free |
Name Reservation Period | 60 days | 120 days | 120 days |
Director and Company requirements | Director must be resident of India | At least one director needs to be resident in Singapore. A registered office has to be established in Singapore, and a local has to be appointed as company secretary within six months. | No residency requirement. |
Taxes | 15%-30% excluding surcharges. | Singapore’s standard headline tax is 17%, but there are a number of exemptions and tax breaks that companies are offered. | Delaware exempts out of state companies from paying income tax, does not require business license, no inheritance tax on stock traded by non-residents, and shares held by aliens are not subject to state tax. However, a franchise tax on the basis of share value has to be paid yearly, beginning from a minimum of USD 175 |
Agent | No local agent required | No local agent required | Requires a state authorized agent to be hired by every foreign company |
Incorporating an entity is the first step you take towards setting up your startup. Make sure everything ranging from the entity you incorporate to the place where you incorporate is conducive for your startup’s growth. Some other factors that need to be kept in mind are:
Where are most of your clients located?
What is the scale of business you are looking at?
Compliance costs associated with Foreign exchange laws.
If you have any query regarding incorporation or choosing an entity, you can reach out to us by clicking on the button below.