A foreign national or entity can start a business in India through various business forms. But it is very important to choose the right kind of business form which is suitable for its purposes and takes care of liability and tax-related issues. Foreign Direct Investment is 100% allowed in many activities and sectors in India. There are two options available for foreign investors to start a business in India, the first is as an Indian Company, and the second is as a foreign company. A foreign company can start a business by incorporating a company under The Companies Act, 2013.
What are the options?
The first option to commence the operation of the business in India by the foreign investors is to incorporate an Indian Company. This can be of the following types:
- Joint Venture
- Wholly owned Subsidiary
A foreign investor can start a joint venture with an Indian Company where 100% FDI is not permitted. A wholly-owned Subsidiary is an option where 100% FDI is permitted. A wholly-owned Subsidiary is mostly opted by the foreign national or entities as it is a fast and cost-consuming process.
The second option is a foreign company. A foreign company can operate its business in India through the following means:-
- Liaison Office
- Project Office
- Branch Office
These offices can operate permitted activities in India. This is a time-consuming and costly process as it requires the prior approval of RBI.
Liaison Office: Liaison officer acts as a communication channel between the head office and entities in India. It does not undertake any commercial activity in India. Liaison office can perform limited functions including a collection of information about possible market opportunities, to provide information about the company and its products, import/export, and technical and financial collaboration between parent company and entities in India.
Project Office: Project office is an option for foreign companies planning to execute their project in India. General permission has been granted by the RBI to set up a temporary project office in India. Such an office carries the activities related to the execution of the concerned project.
Branch Office: Foreign companies engaged in manufacturing and trading activities can opt for the branch office. They can operate the branch office for purposes including import/export of goods, professional or consultancy services, research work, promoting financial/technical collaboration between the parent company and Indian company, representing the parent company, acting as buying/selling agent in India, IT services and development of software in India, technical support to the products supplied by the parent company in India, and foreign airlines and shipping company.
The branch office is not allowed to carry manufacturing activities on its own in India but permitted to subcontract these to an Indian manufacturer. RBI approval is required to set up a branch office.
In what business form subsidiary can be started in India?
Foreign Direct Investment is not allowed in the case of Proprietorship, Partnership Firm, and One Person Company. One of the top preferences of foreign investors for various business activities is Wholly-Owned Private Limited Subsidiary. Large multinational companies generally opt for this form of Subsidiary. Otherwise, the Subsidiary can take the form of a private limited company or public limited company. Under the new Company Act, Subsidiary can also be registered in India as a Limited Liability Partnership, but it requires prior approval of RBI.
Procedure for registration of Wholly Owned Private Limited Subsidiary:
DSC and DIN:-
The first step for registering a Subsidiary in India is to apply for DSC (Digital Signature Certificate) and DIN (Director’s Identification Number) of the directors. The following documents are required for obtaining the DSC and DIN:-
- Identity proof for e.g. PAN card for Indian nationals and copy of Passport for foreign nationals.
- Copy of driving license, bank statement, or any utility bill not older than two months.
- Residence permits of foreign nationals, if residing in India.
- Passport size photographs.
Approval of name:-
It is one of the important steps to set a unique and acceptable name of the company so being incorporated. The name should not be identical to existing identities. It must be in consonance with the object of the company.
Incorporation application:-
This is being a final step requires to files the Memorandum and Articles of Association of the company digitally along with various other documents duly executed by the proposed directors and shareholders.
List of documents required for incorporation:-
- Subscriber sheet of Articles of Association.
- Subscriber sheet of Memorandum of Association.
- Declaration by Director in form DIR2.
- Declaration of Director in form INC9.
Generally, the incorporation documents are required to be self-attested by Indian Nationals. In the case of Foreign National, if the documents are signed outside India, then the same are required to be notarized by the Public Notary of residence country and consularized or apostilled by the competent authority, as the case may be.
If documents are signed in India then a copy of Visa and stamped Passport proving his/her presence in India at the time of signing is required.
If the subscriber is a foreign entity, then the incorporation documents should be signed by the representative of the foreign country. An authorization letter duly stating the name of the authorized person and the number of the shares subscribed should be notarized, consularized or apostilled, as the case may be in the home country of Subscriber Company.
On approval of incorporation application, the Registrar would issue a Certificate of Incorporation with Corporate Identification Certificate (CIN), PAN, and TAN of the company.
Conclusion:
India presents a lucrative environment for various big-shot companies to start a business. Registration of Foreign Subsidiaries in Indian is an easy process that helps foreign investors to achieve their goals. The ease in India’s latest FDI policy attracts investors around the globe to start a business in the amazing diversity of the Indian market.
-Kiranpreet Kaur
Associate at Aggarwals & Associates, S.A.S. Nagar, Mohali
