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India is a popular choice among foreign investors particularly for IT, manufacturing, and engineering, among others. When planning to start a business overseas, it is important to learn about your options as a foreign investor and relevant regulations.
Here we discuss company registration in India and other ways to enter the Indian market.
The legal entities discussed in this article are available to foreign investors and what you will need to set up a foreign company in India.
Private Limited Company (Pvt Ltd)
It is possible to have 100% foreign direct investment under the Automatic Route into a Pvt Ltd company depending on the sector in which it operates making it a popular choice among foreign investors.
Per the Foreign Direct Investment (FDI) Policy of India, investments made by non-resident investors under the Automatic Route does not require any approval from the government. This applies to 100% of the investment amount for sectors like IT, biotechnology, e-commerce, and automobile.
However, for investments made in industries including but not limited to private banking and telecom, there is a threshold for investments under the automatic route. If the percentage of FDI goes beyond the threshold, the investment will be under the Government Route which requires approval.
Pvt Ltd companies can raise equity capital from persons or entities interested in becoming shareholders. Additionally, because shares represent ownership of the company, it’s easy to transfer ownership of the company to another person or legal entity in India or abroad.
Requirements to Set Up a Private Limited Company
To register a Pvt Ltd company, it must have at least 2 shareholders and directors. A shareholder can be a natural person or a corporate entity, however, only living persons can be directors. At least one director must be an Indian citizen and resident. A resident is a person who spends over 186 days a year in India.
Public Limited Company (Ltd)
Indian law defines public companies as companies that are not private companies. A private company that is a subsidiary of public companies also falls under this definition. Investors may convert their private companies to public companies as the business scales up, subject to government approval.
It is important to note that a chartered accountant or company secretary must audit the company. The company must also submit signed financial statements to the government within 6 months from the end of the financial year.
Requirements to Set Up an Ltd
An Ltd company needs a minimum of 7 members with 3 acting as the company’s directors. At least 1 of the directors must be a resident of India. There is also a minimum paid-up capital of INR 500,000 (approx. USD 6,600) for Ltd companies.
Limited Liability Partnership (LLP)
Like Pvt Ltd companies, it is possible to make 100% foreign direct investments under the Automatic Route. Incorporating and managing an LLP is comparatively easier, as such, this is often the preferred option for professionals and small businesses that are family-owned or closely-held.
There is no minimum capital requirement for LLPs. Additionally, audits by a qualified chartered accountant are not mandatory.
Requirements to Set Up an LLP
An LLP must have at least 2 partners, one of whom should be a resident of India.
Alternative Legal Entities for Businesses
Aside from registering a company, foreign nationals can conduct business in India by setting up an office. There are 3 types of offices, each with its own specific purpose. Note that any of these offices must have a parent company.
Liaison Office
A liaison office is set up to represent the parent company in India. This type of office can build and foster business relationships with local companies on behalf of its parent company. It can also gather information about the market for its parent company. Liaison offices cannot earn revenue in India.
To set up a liaison office, the parent company must have a record of making profits in its home country within the last 3 financial years. The parent company must also have a net worth of not less than USD 50,000.
Branch Office
Unlike liaison offices, a branch office may earn revenue in India. Branch offices may conduct business activities such as importing, exporting, research, and consultancy, among others.
The parent company must meet certain conditions in order to open a branch office in India. It must have a record of making profits in its home country within the last 5 financial years. The parent company’s net worth must be at least USD 100,000.
Project Office
A parent company may set up a project office to execute projects. Companies working in construction, development, and oil exploration are usually the ones who open this type of office. Unlike the other offices mentioned in this article, the parent company does not need to show financial records to set up a project office.
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