Foreign companies can start a business in India; however, there are certain rules that needs to be followed in case a foreign company wants to start operations in the country. This article briefly explains how foreign companies can invest and start operating in the country.
India is one of the most progressive countries in the world which possesses immense human potential and a huge market comprising of 1.2 billion people.
Looking at the huge market in India and the immense potential which lies here, there has been huge amounts of Foreign Direct Investments into the country and trends reveal that every year the FDI inflow in India is increasing due to the numerous foreign businesses starting their operations in the country.
Here is a brief on how foreign companies can setup a business in India.
There are majorly two types of entry strategies for foreign businesses in India, registration of a company or in case of establishing a branch/liaison office in India.
The first step is to register a Private Limited Company which is considered to be the easiest and fastest way of entry in India for foreign nationals and also for foreign companies.
The foreign direct investment which ranges up to 100% in a private limited company or a limited company happen under the automatic route and in such case no special permission is required from the Central Government in India.
Secondly, one can opt to register branch office, project office or liaison office which necessarily requires RBI and/or Government approval.
Therefore the cost and the time which is required for the registration of a branch office, project office or liaison office is certainly higher than the time and cost attached to the incorporation of a private limited company.
In order to start a company in India, a minimum of two individuals and an address is required in India. If we are talking about a private limited company, it should have at least two directors (individuals) and a minimum of two shareholders (can be individuals or even corporate entities).
Furthermore, one of the Director of the Company must be an Indian Citizen and also an Indian Resident (any individual who has continuously stayed in the country of India for over 186 days).
As per the rules, the preferred legal entity structure for the foreign companies is to preferably establish a company which consists of three Directors, out of which two directors can be foreign nationals belonging to the parent company and one of the directors have to be an Indian citizen.
There are no such rule of minimum shareholding of the Indian Director. So, the foreign nationals or entities can hold 100% of the shares.
It is mandatory to have an address in India which can be served as the registered office address of the company. Most of the foreign companies setup their registered offices in the metro cities in India like Mumbai, Delhi, Bangalore, Chennai, Hyderabad etc.
In order to register a company in India, the foreign nationals are supposed to submit a copy of their passport along with an address proof (Driver’s License, Bank Statement etc.).
The copy of the original documents should be notarized by a Notary in the home country or by the Indian Embassy in the respective country where the foreign Director belongs to.
In case a corporate entity is aiming to become a shareholder in the Indian Company then the Board Resolution from the foreign company should authorize the investment in the Indian Company.
The Board Resolution that has been decided upon mutually among the Directors should be attached with a notarized copy of the incorporation certificate of the foreign company.
This is to be noted that the presence of any of the foreign Directors is not mandatorily required in India at the time of incorporation in India. Thus, the foreign nationals have the flexibility of establishing and operating a business in India without even travelling to India.
The cost of registering a company in India is nominal. The registration of a company in India is usually completed within few weeks which proves that India is an easy place to start a business.
After the incorporation of a company is completed in India, the Indian Director can help in opening a bank account in the newly incorporated company’s name. Once the bank account has been successfully opened, there must be FDI reporting to the Reserve Bank of India.
The process of reporting the FDI flow into the company is very simple and can be easily completed easily by a legal or an accounting professional practicing in India.
After the completion of FDI reporting, it should be ensured that the business is in proper compliance with all the mandatory regulations in India and is ready for operation.