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Ways to Set up Business in India by Foreign Entities

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Published On: | Administrator

India ranks 63 amongst 190 economies in “ease of doing business” as per the latest annual World Bank ratings. It has become an attractive destination for investment and doing business attributable to the 59 implemented regulatory reforms in 2018-19.  In India, FDI is permissible via the Automatic route (approval from RBI or the government of India is not required) and the government route (approval of the Government of India, Ministry of Finance, Foreign Investment Promotion Board (FIPB) is required).

3 Modes to Set Up Business in India

  1. An Indian Company;

  2. A Foreign Company;

  3. Limited Liability Partnership.

Indian Company

  • Registered under the Companies Act, 2013.

  • Fastest way.

  • Establishes a stronger presence in contrast to other means.

  • Incorporating a private limited company either as a wholly owned subsidiary or a Joint Venture.

Incorporation of a Limited Company

  • Subject to sectoral caps and required approvals under the FDI Policy.

  • Minimum 2 directors required.

  • At least one director must be an Indian citizen and resident (lived in India for over 168 days).

  • Registered office in India.

  • Can own property.

  • Can borrow funds.

  • Can sue and be sued

  • Separate legal entity with unlimited existence.

  • Can hire employees.

Registration

  • Shall be registered with the Ministry of Corporate Affairs.

  • Takes a minimum of 15 days to get a limited company registered.

Permitted Activities

  • Engagement in activities stipulated in the MoA and AoA of the company.

Prohibited Activities

  • Prohibitions under the FDI Policy:

  1. Lottery Business

  2. Gambling and Betting

  3. Nidhi Company

  4. Chit Funds

  5. Real Estate Business (except development of townships, construction of residential premises, REITs etc).

  6. Trading in TDRs.

  7. Activities that are not open to the private sector.

  8. Manufacturing tobacco and its substitutes.

Joint Venture

  • A short-term partnership of 2 companies.

  • Pooling of expertise and resources.

  • Joint Control.

  • Establishment of a separate entity (Pvt. ltd. company) or via an unincorporated entity (strategic alliance).

Foreign Company

Liaison Office

  • It is also called “representation office” and serves as a communication channel between Indian and foreign entities.

  • It is an unincorporated entity and only acts as an extension to a foreign entity.

Eligibility Criteria

  • Profit-making record for three immediately preceding financial years in the home country.

  • Net worth – less than or equal to USD 50,000.

Registration

  • Takes 45 days to register.

  • Approval of RBI and MCA (Ministry of Corporate Affairs) is required.

  • Requires renewal after every 3 years.

Permitted Activities

  • Acting as a communication channel.

  • Collecting information on market opportunities.

  • Marketing the company and its products to potential Indian customers.

  • Promoting import and export, to and from India.

  • Facilitating technical and financial cooperation between parent and Indian Companies.

Prohibited Activities

  • Undertaking any commercial activity and making money in India is not allowed.

Branch Office

  • Just like a liaison office, it is also an unincorporated entity and acts as an extension of the foreign entity.

  • It carries the same or substantially the same business activity as the foreign entity’s head office.

Eligibility Criteria

  • Profit-making track record for 3 immediately preceding financial years in the home country.

  • Net worth – less than or equal to USD 100,000.

Registration

  • Takes 45 days to register.

  • Approval of RBI followed by MCA is required.

  • Renewal is not required. Exception- in case RBI directs so, renewal might be required after 2-3 years.

Permitted Activities

  • Professional and consultancy services.

  • Export/import of goods.

  • Research work.

  • Promoting technical and financial cooperation between Indian and parent company.

  • Representing parent company as buying/selling agents in India.

  • Rendering IT and software development services in India.

  • Providing technical support for products by the parent company or foreign shipping or airline company.

Note:

  • Manufacturing activities can be undertaken only in SEZs subject to the following conditions:

  • Functioning in sectors where 100% FDI is permitted.

  • Compliance with Chapter XXII of the Companies Act, 2013.

Project Office

  • It is similar to a Branch Office however; it is established for a specific project.

Eligibility Criteria

  • Direct funding by inward remittance from abroad.

  • Funding by bilateral or multilateral International Financing Agency.

  • Clearance by an appropriate authority.

  • Grant of term loan for the project from an Indian bank or Public Financial Institution.

Registration

  • Takes 15-20 days to register.

  • Gets automatically approved by Authorized Dealer Bank (does not require RBI approval).

Permitted Activities

  • Executing specific projects in India.

  • Taking up only those activities that are incidental and related to the project.

Note:

  • It shall be closed as soon as the project is complete.

LLP

  • Hybrid of a partnership firm and a limited company.

  • Registered under the LLP Act, 2008.

  • Less paperwork.

  • Minimal record keeping.

  • Can buy and own property.

  • Can produce revenue.

  • Can remit revenue outside India.

Foreign entities can commence business in India via LLPs only in those sectors where 100% FDI is permitted by the RBI.

Conclusion

Choosing the best structure depends on the company’s desired goals and size. It is advisable to consult with a legal professional like us to be able to make an informed decision.

Contact us today by visiting our website- www.bestlegalservices.in