India is a hotspot for foreign investors looking to start their businesses. With its promising business environment and ample opportunities, the country has seen a rise in Foreign Direct Investment (FDI). However, entering a new market like India comes with risks, given its complex rules on taxes, regulations, and accounting.
Before diving in, it’s crucial to understand the process and the laws that govern business in India. Depending on your business type, you’ll need various approvals from the government to get started. Also, choosing the right way to enter the market is key to meeting your goals and ensuring long-term success.
A foreign Company can commence operations in India through the following routes:
Foreign Entity
Indian Entity
Branch Office
Foreign companies can establish Branch Offices (BOs) in India to conduct extensive business operations. These offices can engage in similar trading activities as their parent or group companies. While manufacturing directly isn’t permitted, BOs can subcontract these services to Indian manufacturers.
Permitted Activities for branch office
- Export/import of goods.
- Rendering professional/consultancy services.
- Carrying out research work in which the parent company is engaged.
- Rendering services in Information Technology and development of software in India
- Promoting technical or financial collaborations between Indian companies or overseas parent company.
- Representing the parent company in India and acting as the buying/selling agent.
- Rendering technical support to the products supplied by the parent/group companies.
- Representing a foreign airline/shipping company.
Liason Office
Establishing a liaison or representative office (LO) is a popular strategy for foreign companies entering the Indian market. These offices serve to gather market information and provide details about the company and its products to potential Indian clients. However, they are not permitted to engage in any commercial activities and can only use funds from their parent foreign company to cover expenses.
Permitted Activities for liason office
- Representing the parent company/group companies in India.
- Promoting import/export from/to India.
- Promoting technical/financial collaborations between parent/group companies in India.
- Acting as a communication channel between the parent company and Indian companies.
Project Office
Foreign companies securing project contracts in India can establish temporary project offices (PO) to execute specific projects. In some cases, these offices can be set up without prior approval from the RBI, provided certain conditions are met. POs are limited to activities related to the execution of the project and can repatriate surplus funds to the parent company after project completion. We provide assistance in establishing Project Offices for Foreign Entities in India.
Wholly Owned Subsidiary
A foreign company looking to establish its presence in India can opt to create a wholly owned subsidiary (WOS). This subsidiary structure offers limited liability and allows the parent company to maintain full control over its operations. WOS can be registered as either a private or public limited company, with many small and medium enterprises favoring the private limited option for its closely held nature.
Joint Venture
A Joint Venture (JV) involves two or more partners coming together to form a new company with shared objectives. JVs can be categorized into two types:
Unincorporated Joint Ventures: Typically formed in consortiums for project execution when partners prefer not to establish a separate company.
Incorporated Joint Ventures: More common, where the JV is set up as either a private or public limited company, similar to a wholly owned subsidiary.
Establishing operations through a JV offers several advantages for foreign investors:
- Access to the established distribution/marketing network of the Indian partner.
- Utilization of the financial resources of the Indian partner.
- Leveraging the existing contacts of the Indian partners, streamlining the setup process.
- Entry into sectors that may not allow exclusive ownership by foreign investors.
Limited Liability Partnership
An LLP, or Limited Liability Partnership, combines the benefits of a traditional partnership with those of a private limited company, offering separate legal status and limited liability to its partners. The Indian government has allowed foreign investors to participate in LLPs, aiming to promote this business structure. LLPs provide tax benefits and are easier to manage with lower compliance requirements compared to companies.
