The options available for starting business in India for a foreign company are as follows:
1) As an Indian Company- To begin with the options available for starting business in India, a foreign company can commence operations in India as an Indian company by incorporating a company under the Companies Act,1956 through
Joint venture with an Indian Partner
Going ahead with the options available for starting business in India for the foreign investors, the Foreign Companies can set up their operations in India by forging strategic alliances or Joint venture with an Indian partner.
Joint Venture may entail the following advantages for a foreign investor:
Alternatively, one of the options available for starting business in India can also be setting up of Wholly-Owned Subsidiary Company in sectors where 100% foreign direct investment is permitted under the FDI policy.
For registration and incorporation, an application has to be filed with Registrar of Companies (ROC). Once a company has been duly registered and incorporated as an Indian company, it is subject to Indian laws and regulations as applicable to other domestic Indian companies.
2) As A Foreign Company- A few more options available for starting business in India is by setting up
Liaison Office/Representative Office
This is most suitable for companies who neither have nor see much of a presence in India. Liaison offices are extremely restricted in what they can do and are mainly set up as a communication medium between the Foreign Company and its existing customers in India. A Liaison Office/Representative Office can’t solicit customers nor indulge in any form of promotion. They can’t carry out business operations in India. At the cost of repetition, their role is merely to act as a communication medium between the Foreign Company and the existing Indian customers.
Because of its limited role, the compliance to be completed by a Liaison Office are the least. The biggest advantage is in income taxes where the provisions of Permanent Establishment and Transfer Pricing may not be much of a concern since the Liaison office does not earn any income as such.
Branch Office
Yet another option available for starting business in India for the foreign investors is a Branch Office. This is the next step towards a fully fledged branch business presence in India. A branch office in India can execute most of the tasks that a Limited Company can execute except manufacturing. A Branch Office acts as a branch of the foreign company, be its permanent establishment under the tax laws and can earn income from business operations. Recently the RBI has tightened the norms regarding who can open a branch office in India. One of the criteria is that the Foreign Company intending to open a branch office in India should have a track record of at least 5 years of profit making.
Project Office
Foreign Companies planning to execute specific projects in India can set up temporary project/site offices in India. RBI has now granted general permission of the establishment of project offices as one of the entry strategies for the foreign investors subject to specified conditions. Such offices can not undertake or carry on any activity other than the activity relating and incidental to execution of the project. A Project Office may remit outside India the surplus of the project on its completion, general permission for which has been granted by the RBI.
Steps involved to setup a Branch, Liaison or Project Office in India
The steps involved to set up a Branch, Liaison or Project Office in India.
a). The first step is to approach the Reserve Bank (RBI) of India for permission to do so. The documents that are generally required are Parent Company’s Annual Report for last three years, Certificate of registration, License, Power of Attorney attested by the Indian embassy in the home country, Board Resolution, reason for setting up an office in India etc.
b). If the RBI is satisfied with the above documents, then it gives a letter of approval .Kindly note that the approval letter from RBI may contain some conditions and which are to be observed in the strictest sense. The permission may be for a particular time period, generally three years.
c). Once the permission from the RBI is obtained, then the permission is required from the Registrar of Companies in a single form along with payment of the requisite fees.
d). The entity is known with the extension of the particular office. For example, the branch office in India of ‘XYZ Inc.’ would be known as XYZ Inc. India Branch Office.
e). One important thing to be noted is the appointment of an Authorized Signatory in India. He shall be responsible for all the compliance of the Foreign Company in India
3) Limited Companies- Limited companies can have a full fledged presence in India. The compliance are also greater than a foreign company.
4) Limited Liability Partnership (LLP)- Recently the Government has allowed Foreign Direct Investment through Limited Liability Partnership (LLPs) as one of the entry strategies for the foreign investors. However the policy change seems to have been made for name’s sake and the conditions that accompany the investment in LLP have been made very stringent. For all practical purposes, one needs to wait for further clarity. Till then FDI in LLP shall be advisable only for a very limited set of investment proposals.
1) As an Indian Company- To begin with the options available for starting business in India, a foreign company can commence operations in India as an Indian company by incorporating a company under the Companies Act,1956 through
- Joint Ventures; or
- Wholly Owned Subsidiaries
Joint venture with an Indian Partner
Going ahead with the options available for starting business in India for the foreign investors, the Foreign Companies can set up their operations in India by forging strategic alliances or Joint venture with an Indian partner.
Joint Venture may entail the following advantages for a foreign investor:
- Established distribution/ marketing set up of the Indian partner
- Available financial resource of the Indian partners
- Established contacts of the Indian partners which help smoothen the process of setting up of operations
Alternatively, one of the options available for starting business in India can also be setting up of Wholly-Owned Subsidiary Company in sectors where 100% foreign direct investment is permitted under the FDI policy.
For registration and incorporation, an application has to be filed with Registrar of Companies (ROC). Once a company has been duly registered and incorporated as an Indian company, it is subject to Indian laws and regulations as applicable to other domestic Indian companies.
2) As A Foreign Company- A few more options available for starting business in India is by setting up
- Liaison Office/Representative Office
- Project Office
- Branch Office
Liaison Office/Representative Office
This is most suitable for companies who neither have nor see much of a presence in India. Liaison offices are extremely restricted in what they can do and are mainly set up as a communication medium between the Foreign Company and its existing customers in India. A Liaison Office/Representative Office can’t solicit customers nor indulge in any form of promotion. They can’t carry out business operations in India. At the cost of repetition, their role is merely to act as a communication medium between the Foreign Company and the existing Indian customers.
Because of its limited role, the compliance to be completed by a Liaison Office are the least. The biggest advantage is in income taxes where the provisions of Permanent Establishment and Transfer Pricing may not be much of a concern since the Liaison office does not earn any income as such.
Branch Office
Yet another option available for starting business in India for the foreign investors is a Branch Office. This is the next step towards a fully fledged branch business presence in India. A branch office in India can execute most of the tasks that a Limited Company can execute except manufacturing. A Branch Office acts as a branch of the foreign company, be its permanent establishment under the tax laws and can earn income from business operations. Recently the RBI has tightened the norms regarding who can open a branch office in India. One of the criteria is that the Foreign Company intending to open a branch office in India should have a track record of at least 5 years of profit making.
Project Office
Foreign Companies planning to execute specific projects in India can set up temporary project/site offices in India. RBI has now granted general permission of the establishment of project offices as one of the entry strategies for the foreign investors subject to specified conditions. Such offices can not undertake or carry on any activity other than the activity relating and incidental to execution of the project. A Project Office may remit outside India the surplus of the project on its completion, general permission for which has been granted by the RBI.
Steps involved to setup a Branch, Liaison or Project Office in India
The steps involved to set up a Branch, Liaison or Project Office in India.
a). The first step is to approach the Reserve Bank (RBI) of India for permission to do so. The documents that are generally required are Parent Company’s Annual Report for last three years, Certificate of registration, License, Power of Attorney attested by the Indian embassy in the home country, Board Resolution, reason for setting up an office in India etc.
b). If the RBI is satisfied with the above documents, then it gives a letter of approval .Kindly note that the approval letter from RBI may contain some conditions and which are to be observed in the strictest sense. The permission may be for a particular time period, generally three years.
c). Once the permission from the RBI is obtained, then the permission is required from the Registrar of Companies in a single form along with payment of the requisite fees.
d). The entity is known with the extension of the particular office. For example, the branch office in India of ‘XYZ Inc.’ would be known as XYZ Inc. India Branch Office.
e). One important thing to be noted is the appointment of an Authorized Signatory in India. He shall be responsible for all the compliance of the Foreign Company in India
3) Limited Companies- Limited companies can have a full fledged presence in India. The compliance are also greater than a foreign company.
4) Limited Liability Partnership (LLP)- Recently the Government has allowed Foreign Direct Investment through Limited Liability Partnership (LLPs) as one of the entry strategies for the foreign investors. However the policy change seems to have been made for name’s sake and the conditions that accompany the investment in LLP have been made very stringent. For all practical purposes, one needs to wait for further clarity. Till then FDI in LLP shall be advisable only for a very limited set of investment proposals.
- First thing to note is that FDI will be allowed only in those companies where 100% FDI is allowed through the automatic route and there are no FDI-linked performance related conditions.
- Automatic approval route means no prior permission from the Government/ FIPB is required. FDI-linked performance related conditions meant that in sectors, where conditions like minimum capitalization, compulsory disinvestment after a few years etc are prescribed; even though 100% FDI is allowed under automatic route, LLP’s will not be allowed to bring FDI with the approval of Government of India.
- No FDI shall be allowed in agricultural/plantation activity, print media or real estate business.
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