Incorporating  a Company in

India for Foreign Investors

 How to Incorporate in India | How to Open a Business in India | How to Form a Joint Venture in India | Procedure for Forming a Company in India | Type of Companies in India | Corporate Laws of India | Companies Act
 

 

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Types of Corporate & Business Entities in India

In India, the following types of business entities are available:

 

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Private Limited Company

A private company is a company which has the following characteristics:

  • shareholders’ right to transfer shares is restricted;

  • the number of shareholders is limited to fifty; and

  • an invitation to the public to subscribe to any shares or debentures is prohibited.

A Private Limited Company is the most popular form of business entity used for Foreign Investors in India, including USA investors in India. It takes some time to incorporate in India as there are various steps required in forming a private limited company in India. There are various steps required to establish a business in India, before and after incorporation, as mentioned hereinafter.

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Public Limited Company

Limited Liability Partnership Law soon in India

A new law to allow "Limited Liability Partnership" (LLP) in India is expected to be introduced in the Parliament of India.
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A public company is defined as a company which is not a private company. The following conditions apply only to a public company:

  • It must have at least seven shareholders.

  • A public company is not authorized to start business upon the grant of the certificate of incorporation. In order to be eligible to commence business as a corporation, it must obtain another document called "trading certificate".

  • It must publish a prospectus or file a statement in lieu of a prospectus before it can start transacting business.

  • A public company is required to have at least three directors.

  • It must hold statutory meetings and obtain government approval for the appointment of the management.

There are several other provisions contained in the Companies Act 1956 which are applicable only to public companies and should be consulted.

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Liaison Office/Representative Office

A Liaison Office could be established with the approval of the government of India. The role of Liaison Office is limited to collection of information, promotion of exports/imports and facilitate technical/financial collaborations.

Liaison office cannot undertake any commercial activity directly or indirectly.

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Project Office

Foreign companies planning to execute specific projects in India can set up a temporary project/site offices in India for carrying out activities only relating to that project. The Government of India has now granted general permission to foreign entities to establish project offices subject to specified conditions.

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Branch Office

Foreign    companies    engaged   in manufacturing and trading activities abroad are allowed to set up Branch Offices in India for the following purposes:

  • Export/Import of goods

  • Rendering professional or consultancy services

  •  Carrying out research work, in which the parent company is engaged.

  •  Promoting technical or financial collaborations between Indian companies and parent or overseas group company.

  •  Representing  the parent company in India and acting as buying/selling agents in India. 

  •  Rendering services in Information Technology and development of software in India.

  •  Rendering technical support to the products supplied by the parent/ group companies.

  •  Foreign airline/shipping company.

A branch office is not allowed to carry out manufacturing activities on its own but is permitted to subcontract these to an Indian manufacturer.  Branch Offices established with the approval of RBI, may remit outside India profit of the branch, net of applicable Indian taxes and subject to RBI guidelines Permission for setting up branch offices is granted by the Reserve Bank of India (RBI).

   Procedure for Formation of Company in India

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Foreign companies Establishing Business in India

For a foreign Investor in India it is very important to choose a right kind of business or corporate entity which best suits its purposes and takes care of liability issues and tax planning issues. Foreign Companies planning to do business in India should pay special attention to Entry Strategies in India for Foreign Investors and corporate structuring to save taxes to the best extent allowed by laws and international tax treaties.

Both the Indian promoters and the foreign promoters can form the following business entities: Private Limited Company, Public Limited Company, Unlimited Company, Partnership and Sole Proprietorship. The foreign companies also have the options of forming the following type of business entities: Liaison Office/Representative Office, Project Office, Branch Office, and Joint Venture Company.  It must be noted that a Joint Venture Company is not a separate type of legal entity; it could be either a Private Limited Company, a Public Limited Company, or an Unlimited Company. Similarly a wholly owned Subsidiary of a foreign company in India could be either a Private Limited Company, a Public Limited Company, an Unlimited Company, or a Branch Office.

It is also mandatory for foreign investors or foreign shareholders, both individuals and corporate shareholders, to seek Government Approvals for Investing in India  In some special cases Foreign Investment Promotion Board, FIPB Approval for Foreign Investment in India is required. In other cases Reserve Bank of India, RBI Approvals for Foreign Investment in India is required. The sectors where RBI Approval for foreign investors is available under automatic route can be found at FDI in India Sector wise Guide.

There are various steps required to establish a business in India, before and after incorporation, as mentioned hereinafter. See also the Procedure for Formation of Company in India.

A Company in India can have foreign directors provided some conditions are fulfilled. The directors of an Indian company, both Indian and foreigner directors, are required to obtain Director Identification Number - DIN and Digital Signature Certificate - DSC

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There are some restrictions regarding issuing sweat equity for a company incorporated in India.

Also see Annual Corporate Filings in India for corporate maintenance requirements in  India.

Foreign investors planning to incorporate in India are required to seek governmental approval before investing in India. Some approvals are automatic, - RBI Approvals - though application is required for those approvals. Special Permission - FIPB Approvals - could be obtained to invest over and above the regular percentage allowed. See our FDI in India Sector wise Guide for more information on various conditions of investing in India. Also see Withholding Tax Rates For Foreign Companies Doing Business In India Under The Tax Treaties &  the Joint Ventures in India

 

Contact us for incorporating in India & setting up business in India

Legal Outsourcing | Outsourcing Agreements | Outsourcing to India | Joint Venture Agreements

Doing Business with India Free Guide | Incorporating company in India | Procedure for Formation of Company in India | Formation of Subsidiary in India |  Starting a Business in India | Opening Branch in India | Annual Corporate Filings in India | Patents in India | Trademarks in India | Tax Rates in India | Withholding Tax Rates For Foreign Companies Doing Business In India Under The Tax Treaties | Joint Ventures in India | FDI in India Sector wise Guide | India Business | Arbitration in India | Cyber Laws of India | Corporate Compliance in India | Corporate Affirmative Action Program in India | How to Outsource Successfully | Investing in Stocks & Mutual Funds in India - Foreign Institution Investors in India |   Investing in Real Estate in India  | Marriage Procedures in India  | Serving Summons in India  |  Dual Citizenship of India  |  NRI & PIO Home Page | Process Serving in India - Types  |  India Hague Process Servers  | Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters

  

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