Operating as a FOREIGN Company
Liaison office/Representative Office
Setting up a liaison or representative office is a common practice for foreign companies seeking to enter the Indian market. The role of such offices is limited to collecting information about the market, and providing information about the company and its products to prospective Indian customers.
Such offices act as listening and transmission posts, and transmit information between the foreign company and its Indian customers. A liaison office is not allowed to undertake anything other than liaison activities in India and cannot, therefore, earn any income in India, under the terms of approval granted by the RBI.
A liaison office can be established under the prior approval of the RBI where the principal business of the foreign entity falls under sectors where 100% FDI is permitted under the automatic route; otherwise, the additional approval of the central government is required.
Foreign companies intending to establish a liaison office in India need to have a net worth of at least USD 50,000 or equivalent, and a profit-making track record in the home country during the immediately preceding three financial years.
Additionally, the office must be registered with the Registrar of Companies and details of the liaison office must be reported to the Director General of Police under whose jurisdiction the liaison office is established.
Foreign companies engaged in manufacturing and trading activities abroad can set up branch offices in India for the following purposes, with the prior approval of the RBI:
- Export and import of goods, products
- Professional or consultancy services
- Research work in which the parent company is engaged, to promote technical or financial collaboration between Indian companies and the parent company.
- Representing the parent company in India and acting as a buying or selling agent in India
- IT and software development services in India
- Technical support for products supplied by the parent or group companies
- Acting as a foreign airline or shipping company.
A branch office can be established under the prior approval of the RBI if the principal business of the foreign entity falls under sectors where 100% FDI is permitted under the automatic route; otherwise, the additional approval of the central government is required.
Foreign companies intending to establish a branch office in India need to have a net worth of at least USD 100,000 or its equivalent, and a profit-making track record in their home country during the immediately preceding three financial years.
In general, manufacturing activities cannot be undertaken through a branch office. However, foreign companies can establish a branch office or unit for manufacturing in an SEZ, subject to the fulfilment of certain conditions. In addition, a branch office must be registered with the Registrar of Companies and details of the liaison office must be reported to the Director General of Police under whose jurisdiction the liaison office is established.
Foreign companies planning to execute specific projects in India can set up temporary project and site offices for this purpose.
The RBI 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, or
- the project has been cleared by an appropriate authority, or
- a company or entity in India awarding the contract has been granted a Term Loan by a Public Financial Institution or a bank in India for the project
Operating as an INDIAN company
Wholly Owned Subsidiary
A foreign company can set up a wholly owned subsidiary company (Private Limited Company) in India to carry out its activities.
A private limited company is the most common form of entity in India. It offers a lot of flexibility in terms of permissible operations according to Indian regulations. The limitation on shareholder liability and the level of control on operations make it the preferred route for foreign businesses establishing their India operations.
Such a subsidiary is treated as an Indian resident and an Indian company for all Indian regulations (including income tax, Foreign Exchange Management Act,1999 and the Companies Act), despite being 100% foreign-owned. At least two shareholders are required for a private limited company and 7 shareholder for a Public limited company, are mandatory. The activities of such a company need to comply with the provisions of the FDI policy.
JV with an Indian Partner (with Equity participation)
Generally, foreign companies prefer a wholly-owned subsidiary option, but now they have also begun to start operations in India by forming strategic alliances (JV – Joint Venture) with Indian partners.
Normally, the foreign companies choose a partner in the same area of activity, or who has synergy with the foreign investor’s plans for India.
Sometimes, JVs also become mandatory due to Policy restrictions on foreign ownership in certain sectors.
Limited liability Partnership (LLP)
An LLP is a new form of business structure in India. It combines the advantages of a company, such as being a separate legal entity having perpetual succession, with the benefits of the flexibility associated with a partnership firm, related to organising their internal management based on mutual agreement. At least two partners are required to form an LLP. These partners have limited liability for the LLP.
With less stringent compliance requirements an LLP is comparatively easier to manage than a Private Limited Company.
This format is very useful for small and medium enterprises and for the services sector in particular, including professional services and knowledge-based enterprises.
Furthermore, an LLP is not subject to mandatory compliance requirements applicable to a company under the Companies Act, 2013
Any Enterprise in India is obliged to have the required business registrations for running operations smoothly and within the legal framework.
India is a vast country with 29 states, 7 Union Territories (UT's). These registrations & Approvals therefore, differ by territory, industry and type of operations.
ALTA META supports it clients comprehensively in getting all the necessary Registrations & Approvals.
The registrations are categorised according to the functions of the proposed business establishment.
- Service Enterprises: These Registrations are very common and normally required by any enterprise. List includes Service Tax, Local Bodies Tax, Importer-Exporter Code (IEC), Shops Act, Profession Tax etc
- Trading Enterprises: Moreover, in addition to the above, Trading Enterprises are also obliged to have Value Added Tax (VAT), Central Sales Tax (CST) etc.
- Manufacturing Enterprises: Registration formalities & compliances for Manufacturing are the maximum.
- Approvals: Electricity and Water Connectivity, Building and Layout Plan, Excavation, Lifts and Elevators, Gram Panchayat NOC etc.
- Registrations: CENVAT (Excise Duty), Factories Act, Pollution Control Board, Industries Entrepreneur Memorandum (IEM/EM).
- Labour Registration: Employee State Insurance (ESI), Employee Provident Fund (EPF), Building & other Construction Workers Welfare Cess Act, Contract Labour Act, etc.
- Specific Registrations: There are some speciality Industries which require registrations specific to that industry or depend on the activity performed by the Enterprise in question. These specific Registrations may include explosives, Banks, Financial Institutions, packaging, drugs, cosmetics etc.
We understand that before finalizing a location, it is extremely important to assess various factors such as availability of Utilities & Physical Infrastructure, Government Incentives, Land, logistics support, physical infrastructure, Taxation etc.
Therefore, our Research provides you with the choice of locations, after considering various factors, which include:
- Government Incentives
- Availability of Utilities & Physical infrastructure
- Logistics support costs
- Land Purchase/Lease, Rental space
- Resource procurement- Labour, suppliers & sub-suppliers, contractors & sub-contractors