India is one of the fastest growing economies of the world with the government continually taking initiatives to make it easier for the foreign businesses to establish in India. India was ranked 63 out of 190 countries as per the World Bank’s Report, 2022 for ease of doing business.
Under the Companies Act, 2013 (“Act”) a “foreign company” is any company incorporated outside India which has a place of business in India whether by itself or through an agent, physically or through electronic mode and conducts business activities in India in any other manner.
For a foreign company to establish a business in India, it can do so either by way of incorporation or by establishing a liaison, project or branch office in India. In this article, we will discuss the ways for the foreign companies to enter to Indian market and the requirements for the same.
Eclectic Ways for Foreign Companies to Establish Business in India
The foreign companies can mark its presence in India as an Indian Company or as a foreign company. As an Indian company, it can either establish a business by forming joint ventures or establishing a wholly owned subsidiary company. As a foreign company, it can have branch office, liaison office and project office in India.
Foreign companies looking to enter the Indian market often choose joint ventures as a relatively low-risk option. It enables the foreign investor to profit from the established market and consumer base, distribution networks, regional expertise, and management of the Indian partner. They are also an ideal way to enter industries where 100% Foreign Direct Investment (“FDI”) is not permitted in India.
A memorandum of understanding needs to be executed between the foreign company and its Indian partner for the two entities to work together towards a common business goal.
Wholly Owned Subsidiary
Foreign companies can set up wholly-owned subsidiaries by making 100% FDI in India through an automatic route subject to the provisions of the Reserve Bank of India (“RBI”), Foreign Exchange Management Act, 1999 and the Act.
The establishment of the private limited company is the easiest way. The following requirements are needed to be fulfilled:
- Minimum 2 shareholders.
- At least one director of every company should be Indian resident (any person who has lived in India for more than 186 days).
- The directors are required to apply for DIN and obtain digital signature certificate.
- An application through the e-form RUN must be submitted in order to reserve a name of the company.
- Together with the MOA and AOA of the Company, an application using SPICe+ E-form must also be submitted. The SPICe+ E-form must be submitted in order to register the business. By submitting an AGILE-PRO-S form, a wholly-owned subsidiary would also receive a PAN and TAN, a Professional Tax Registration, a Bank Account, Shops and Establishment Registration, a GST number, Workers Provident Fund Registration, and Employees State Insurance Registration.
A foreign company can open a branch office in India. Businesses keen on setting up a branch office should meet the certain criterion as prescribed by RBI.
For any liaison-related activities in India, a foreign firm may open a liaison office. They are not allowed to undertake any business activity in India. A such, all liaison office costs will be covered by the parent company using foreign remittances. Businesses keen on setting up a liaison office should meet certain criterion as prescribed by RBI.
A foreign company can set up a project office in India to execute projects assigned to them by the Indian companies. However, to establish such a project office, foreign company is required to obtain approval from RBI. RBI has granted general permission to foreign companies to establish project offices only if it has secured a contract, to execute a project in India, from an Indian company.
The best way for a foreign company to enter the Indian market depends on its specific requirements viz., the scope of its activities, plans for expansion, and business objectives.