India is one of the most robust economies of the world with a huge market and immense human resources. A large number of foreign investors tempted by the attractive business opportunities are looking to open a company in India. In addition to the availability of essential resources, the introduction of favorable policies by the government has also led to an influx of overseas enterprises in the country. The entry of these corporations is creating numerous jobs for the local population and also opening up new avenues for Indian entrepreneurs. In this article, we are providing valuable information on the legal routes that foreign companies can take to establish a business setup in India. Let’s take a look at all the ways they can use to become a part of the local commercial ecosystem.
1. Creating A Wholly Owned Subsidiary
The most preferred entry strategy for foreign businesses is to create and register a wholly owned subsidiary in the country. This means that no prior approval from the Government of India or the Reserve Bank of India is required for the purpose. The easiest way for companies is to register their wholly owned subsidiary as a private limited company.
There is no minimum capital requirement for forming a private limited company but a minimum of two directors, as well as the same number of shareholders, are needed for registration. At least one director of the new company must be a resident of the country meaning he/she has spent at least 182 days in India during the previous year.
2. Starting A Joint Venture
Another strategy used by overseas investors for setting up a company in India is to begin a joint venture (JV) with one or more partners. This route is used especially for entering segments where 100% FDI is not allowed. The parties involved in a JV arrangement can choose to create a completely new company or work with the promoters of an existing entity. When one of the partners is a foreign national or a Non-Resident Indian (NRI). The overseas investor must choose a local partner for the venture and sign a Memorandum of Understanding (MoU).
The document must also contain the specified manner of funding for the new entity and its shareholding structure. It must also include the duration of the partnership as well as the dispute resolution mechanism agreed upon by all participants.
3. Establishing A Liaison Office
The two modes to open a company in India discussed above allow foreign investors to enter the market as local business entities. Then it can gain entry as a foreign company and open a liaison office. Companies which have earned profits during the past 3 financial years. The establishment can be used for the purpose of promoting the business of the parent organization and explore possible commercial collaborations with Indian partners. The office can also promote import and export between the two nation.
The foreign investor must get approval from RBI and then incorporate the new body with the Registrar of Companies (RoC). It must submit an Annual Activity Certificate (AAC) prepared by a chartered accountant to the RBI and the Income Tax department.
4. Setting Up A Project Office
Foreign entities are allow to set up a project office in India. If they have won a contract from an Indian organization and need the establishment for executing the project. Which awarded the contract has received a loan for the purpose from a bank or other public financial institution. The foreign company will have to get approval from the RBI if it fails to meet the specified conditions.
Opening A Branch Office
Overseas corporations can open a branch office in India for exporting or importing goods. The office can act as a selling/purchasing agent for the parent company. Promote technical or financial collaborations with Indian organizations. Most companies open this office for providing technical support for their products or for rendering IT services in the country. The branch office is not an independent entity and merely an extension of the main company. The foreign organization must have earned profits in the previous 5 financial years. Its net worth must be more than $ 100,000 in order to be eligible for the purpose.
These are the legal routes that foreign investors can take to open a company in India. They must engage a local agency to get assistance on the incorporation procedure and learning about compliance requirements.