Business Setup & Advisory

Business Setup in India

 

Prevailing types of Business Entity in India

The following are the types of business entities which

can be legally established in India,

 

  • Proprietorship
  • Partnership firm
  • Limited Liability Partnership
  • Private Limited Company
  • Public Limited Company

In addition to the above legal entities, the following types of entities can be incorporated or established by foreign investors/foreign companies for establishing their business in India:

 

  • Proprietorship
  • Partnership firm
  • Limited Liability Partnership
  • Private Limited Company
  • Public Limited Company

Entry Strategy for Foreign Investors

 

 


Business Setup In India

A Foreign Company planning to set up business operation in India has the options to establish its both direct as well as indirect presence in India.

 

Mode of Direct Presence – As an Incorporated Entity:

A Foreign Company establishes its direct presence in India by incorporating an Indian company under the Companies Act, 1956 which can be either of the following-

 

  • Joint Venture Company; or
  • Wholly Owned Subsidiary Company of a parent foreign company

The foreign equity participation in such Indian companies can be upto 100% in terms of both shareholding percentage and foreign capital investment; depending on the equity caps and sectoral limits as prescribed under the FDI Policy on the business activity to be carried out by such company in India and depending upon the requirements of the investor.  

 

Mode of Indirect Presence – As an Unincorporated Entity:

A Foreign Company makes its indirect presence in India by establishing either of the following office(s):

 

  • Liaison Office;
  • Project Office;
  • Branch Office.

Liaison Office: The basic role of liaison office is to promote the business of the foreign company in India and is allowed to carry on limited operations only. Setting up of a Liaison Office requires prior approval of the Reserve Bank of India.

The applications from such entities in Form FNC will be considered by Reserve Bank under two routes:

 

  • Reserve Bank Route — Where principal business of the foreign entity falls under sectors where 100 per cent Foreign Direct Investment (FDI) is permissible under the automatic route.
  • Government Route — Where principal business of the foreign entity falls under the sectors where 100 per cent FDI is not permissible under the automatic route. Applications from entities falling under this category and those from Non - Government Organizations / Non - Profit Organizations / Government Bodies / Departments are considered by the Reserve Bank in consultation with the Ministry of Finance, Government of India.

A Liaison Office is not allowed to carry out any business activity and therefore would not be expected to earn any taxable profits. Thus, the activities of a foreign company through its liaison office in India does not become taxable in India, provided crucial board decisions are not made in India. However, if in contravention of approvals and rules, the taxable profits are earned by the liaison office, the rate of tax would be 40% (plus Surcharge and Education Cess) i.e. rate applicable to a foreign company.

 

Project Office:  Reserve Bank has granted general permission to foreign companies to establish Project Offices in India, provided they have secured a contract from an Indian company to execute a project in India, and

 

  • The project is funded directly by inward remittance from abroad; or
  • The project is funded by a bilateral or multilateral International Financing Agency;


Follow us on: