Business Formation Law Firm In India
Doing Business in India
After the economic reforms of 1991, the Indian economy has grown exponentially.
Today every multinational company has a strong foothold in India. Medium and small sized companies from around the world are still making a beeline to India seeking to benefit from the growing economy, while some are watching on the side-lines waiting for the right opportune moment to enter.
A stable political government democratically elected, along with a burgeoning population most of whom are aged less than 30 who make sure that the light of democracy is not dimmed or extinguished, a bureaucracy which is waking up to the urgent needed reforms, though the economic reforms woke up more than three decades back in 1991, an economy which is a blend of laissez faire and cautious socialism growing at a not so fast pace so as indicate a burnout, a judiciary which is slow in delivering justice but sure of delivering it all the same aided by stable laws which have kept pace with the changing requirements required on all fronts – social, technological, economical, all have contributed to success of the growth story.
Entry Strategies for Foreign Companies
Foreign companies seeking to do businesses in India can opt for an incorporated legal entity in India, with limited liability, which upon incorporation is equated with a domestic company. The legal entity so incorporated under the Companies Act, 2013 could either be a private limited company or a public company (either listed or unlisted). A listed company has the advantage of raising funds from the public in general through a public issue (after becoming eligible to do so and upon obtaining the necessary approvals from the Securities and Exchange Board of India) and an unlisted company can raise funds from select individuals or groups without any restriction on the number of shareholders.
Wholly Owned Subsidiary
The most opted route for foreign companies to establish their business in India is through its Wholly Owned Subsidiary, whereby the subsidiary is completely controlled by the foreign company. The Wholly Owned Subsidiary generally takes the form of a private limited company, which has limited liability to the maximum extent of its fully paid-up share capital, thereby protecting it from financial losses and debt liabilities, arising out of carrying on its business in India.
Joint Venture Company
Foreign companies can also join hands with Indian individuals or Indian companies to establish their joint venture company in India. The joint venture company can also be established either as a private limited or public limited company.
Limited Liability Partnership
Foreign companies or foreign individuals can also opt for a limited liability partnership, which also has the advantage of being a corporate entity, but with limited liability in the same manner as a limited liability company incorporated under the Companies Act, 2013.
Foreign companies can also choose to establish their liaison office or branch office or project office depending upon the nature of their business in India.
Liaison Office
Foreign companies may set up a liaison office in India, if the intention is to merely represent the foreign company in India before Indian customers, to either source goods from India or to sell goods to Indian customers. The liaison office in India acts as an intermediary between the foreign parent company and the Indian customer. A liaison office is not permitted to generate any revenue in India and hence it does not pay any corporate income tax. An approval to establish a liaison office in India is granted by the Reserve Bank of India.
Branch Office
Foreign companies are also permitted to set up their branch offices in India to undertake certain permitted business activities in India. An approval to establish a Branch Office in India is granted by the Reserve Bank of India. A branch office pays a higher rate of corporate income tax than a domestic company and hence a branch office may not be the most preferred route of doing business in India by a foreign company, unless there are compelling reasons, otherwise to do so.
Project Office
The Reserve Bank of India has granted a general permission for foreign companies to establish a project office in India, provided they have been granted a contract by an Indian company to execute a project in India, subject to certain conditions. However, if the conditions are not met, the foreign company must obtain a prior approval from the Reserve Bank of India to establish its project office in India.
If you intend to do business in India, please feel free to contact us and we will guide you on the formation of the legal entity most suited to your business needs.
