To do business in India, following options are available to foreign companies:

Setting up a non-corporate entity

Liaison office: A liaison or a representative office can be opened in India subject to approval by Reserve Bank of India. Such an office can undertake liaison activities on its company’s behalf. A liaison office can also undertake:

  • Representing parent/group companies in India
  • Promoting import/export in India
  • Promoting technical/financial collaborations on parent company/group’s behalf
  • Coordinating communications between parent/group companies and Indian companies

Branch Office: Foreign companies can conduct their business in India through its branch office which can be opened after obtaining a specific approval from Reserve Bank of India. A branch office can undertake following activities:

  • Import & export of goods
  • Rendering professional or consultancy services
  • Carrying out research work in area which its parent company is engaged
  • Promoting technical/financial collaborations on behalf of parent company/ overseas group company
  • Representing parent/group companies in India and acting as buying/selling agent in India
  • Providing IT services and developing software in India
  • Providing technical support for products supplied by parent company/group

Project office: If a foreign company is engaged by an Indian company to execute a project in India, it may set up a project office without obtaining approval from Reserve Bank of India subject to prescribed reporting compliances. As applicable in case of a branch office, a project office is treated as an extension of foreign company and is taxed at the rate applicable to foreign companies.

Setting up a corporate entity

Wholly owned subsidiary: Foreign companies can set up wholly owned subsidiary companies in India in form of private companies subject to FDI guidelines. A wholly owned or a subsidiary company has the maximum flexibility to conduct business in India when compared with a liaison or branch office and has following salient features:

    • Funding can be done via equity, debt (foreign as well as local) and internal accruals
    • Indian transfer pricing regulations apply
    • Repatriation of dividends is allowed without approvals

Joint Venture with Indian partner: Foreign companies can also set up joint venture with Indian or foreign companies in India. There are no separate laws for joint ventures in India and laws governing domestics companies apply equally to joint ventures.

Foreign Institutional Investors: FII’s can invest in India in financial markets such as pension funds, mutual funds, investment trusts and asset management companies or their power of attorney holders. FII’s can invest in all securities in primary and secondary markets including the equity and other instruments of companies which are listed or are to be listed on stock exchanges of India.

Set up process

Liaison office: Setting up of a liaison office requires prior approval from Reserve Bank of India (RBI). Approval is usually granted for a period of three years and can be renewed thereafter.

Branch office: A prior approval from RBI is required. RBI closely examines the proposed activities to be carried out in India.

Subsequently, a certificate of establishing place of business in India is required to be obtained from Registrar of Companies.

Project office: In specified cases, a project office is allowed to be set up under automatic route otherwise a prior approval is required from RBI. As in case of branch office, a certificate of establishing place of business in India is required to be obtained from Registrar of Companies.

Incorporation of a company
For registration and incorporation, an application has to be filed with Registrar of Companies. Once a company has been registered and incorporated in India, it is subject to laws and regulations as applicable to other domestic companies in India.

There two types of companies which can be incorporated:

Private company: A private company is a company which has minimum of two members and a minimum paid up capital of Rs. 100,000 or a higher paid up capital as may be prescribed.
By its articles, a private company has to:

  • Restrict rights to transfer its shares, if any
  • Limit its shareholders to a number of fifty
  • Prohibit any invitation to public to subscribe any of its shares or debentures of the company
  • Prohibit any invitation to acceptance of deposits from any person other than its members, directors or their relatives

Public company: A public company is defined as a company which is not a private company. A subsidiary of a public company is also treated as a public company. A public company is required to have a minimum paid up capital of Rs. 500,000 with a minimum seven members and three directors. Maximum number of directors is 12 but can be increased subject to government approval.

Incorporation procedure:

Following steps are required to incorporate a company:

  • Obtaining DIN (Director Identification Number)
  • Applying for name availability
  • Drafting Memorandum of Understanding (MOU) and Articles of Association (AOA)
  • Court stamping of MOU and AOA
  • Signing of MOU and AOA by first subscribers
  • Filing with Registrar of Companies (ROC)
  • Vetting of MOU and AOA by ROC
  • Obtaining certificate of incorporation

Immediate Business compliance’s:

Following registrations would be required to be done, depending on nature of business:

  • PAN (Permanent Account Number): All income tax payers are required to obtain an income tax registration number i.e. PAN
  • TAN (Tax Deduction Account Number): While running a business, certain payments will require the payee to withhold tax. A new business is required to obtain Tan from income tax department.
  • Service tax: A person/company providing specified services needs to obtain service tax registration within 30 days of providing the services.
  • VAT (Value Added Tax): VAT is levied on sale of goods. Any business proposing to carry out a works contract or trade in goods needs to register for VAT.
  • Excise registration: Excise is an indirect tax levy on manufacture of goods.
  • FRRO (Foreigners Regional registration Office): Foreigners coming to India on employment need to register with FRRO within 14 days of their arrival.
  • IEC (Import Export Code): Prior to carrying out any export or import activities, it is mandatory to obtain an IEC from Directorate General of Foreign Trade.