Business Setup in India

 Business Setup in India

 

India is one of the fastest growing economies and 7^th largest economy in the world, offering massive business potential and a sizable market with a population of 1.39 billion people. Due to India's vast market potential, over the years, it has attracted huge amount of Foreign Direct Investment (FDI), and the volume of FDI inflow continues to increase each year as a number of foreign corporations establish operations in the country.

This post explains various options for business set up in India for foreign companies.

A foreign company can set up business in India in the form of an Indian entity or as foreign entity. Under both the options, again there are many options available which are discussed as under:

BUSINESS SET UP IN INDIA AS AN INDIAN ENTITY

Foreign companies can set up business in India as an Indian entity in one of the following manner:

a)      Company or Corporation

b)     Limited Liability Partnerships

c)      Joint Ventures

 

Company or Corporations

 

Foreign companies can open Private limited Company or Public Limited Company. In case foreign company held more than 50% shares in the Indian company, Indian company would become subsidiary company of foreign parent company.

 

In case, foreign company Held 100% shares of an Indian company, it is called as wholly owned subsidiary of its parent foreign company.

It may be noted that subsidiary company registration in India is one of the most popular and widely used entity registration by foreign companies.

 

Minimum 2 Directors and shareholders are required for registering a private limited company and minimum 3 Directors and 7 shareholders are required for registering a public limited company. Out of which at least 1 director must be an Indian resident and citizen.

 

 

Foreign equity in such Indian enterprises can be up to 100 percent depending on the investor's needs, subject to equity caps in the area of activity under the Foreign Direct Investment (FDI) policy.

 

Limited Liability Partnerships [ LLPs]

 

Foreign companies can also register LLPs in India which is also very popular form of entity registration after company incorporation. Here, also, minimum 2 partners are required for registration. It is suitable for professionals providing professional services in India.

 

Joint Venture With An Indian Partner

 

Foreign can also might establish operations in India through strategic collaborations with Indian partners.

 

A foreign investor may benefit from a joint venture in the following ways:

 

●       Access to the Indian Partner's available capital, distribution channels, and contacts through joint ventures;

●       An advantage if the contracting parties are compatible;

●       Split the risk involved with large investments or undertakings

 

Joint Ventures are being created for a particular project/purpose and are immediately closed once project/ purpose is completed.

 

BUSINESS SET UP IN INDIA AS A FOREIGN ENTITY

Another options for Foreign Company Registration in India is in the form of

●      Liaison Office

●      Project Office

●      Branch Office

 

Prior permission of Reserve Bank of India are required for establishing aforesaid entities in India. Such offices can undertake any permitted activities. Companies have to register themselves with Registrar of Companies (ROC) within 30 days of setting up a place of business in India.

Liaison Office

 

Basic Purpose: Liaison offices are responsible only for liaison work, which is to facilitate communication between head offices abroad and Indian parties.

 

Eligibility Criteria: Foreign Entities are required to have a profitable track record in their home countries for the past three financial years, and a net worth of not less than $50,000.

 Branch office

 

Basic Purpose: To undertake activities such as Export, Import, research, consultancy, etc.

 

Eligibility Criteria: The foreign parent company's net worth must be above $100,000, and it must have a five-year track record of profitability.

 

Project Office

 

In order for a foreign company to open a Project Office/s in India, it must secure a contract with an Indian company before executing the project. A Project Office is not permitted to engage in any other activity besides incidental or related activities.

FOREIGN DIRECT INVESTMENT (FDI) POLICY

In order to facilitate foreign direct investments in India, RBI has defined 2 routes i.e automatic routes and government approval route of making investment in India.

 

Under the automatic route, FDI is now allowed in all sectors, including the services sector, with the exception of a few industries where it is strictly prohibited like

●     Atomic Energy Generation

●     Any Gambling or Betting businesses

●     Online, private, and government lotteries

●     Manufacturing of Tobacco, substitutes including cigars and cigarettes

●     Real estate (excluding townships, commercial projects, etc.)

●     Trading in TDRs

●     Agricultural or Plantation Activities (although there are many exceptions like horticulture, fisheries, tea plantations, Pisciculture, animal husbandry, etc

It is not necessary to obtain prior approval for FDI under the Automatic Route. Only information must be submitted to RBI within 30 days of inward remittances or shares issued to Non-Residents. In order to report shares issued by Indian companies to foreign investors, RBI has prescribed a new Form FC-GPR (instead of FC-RBI).

However, prior approval of RBI is required in order to make investment in sectors which are not under automatic approval route.

 

Thus, there are many options available for Foreign Company Registration in India for business set up in India and depending upon nature of business as well as long term business vision of the entity, one may opt for appropriate option.

 

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