Starting Business in India: Guide for Foreign Investors
India as a Prime Destination for Foreign Business Expansion
India has become one of the most attractive destinations for foreign entrepreneurs looking to expand their businesses or set up new ventures. With a rising trend of Foreign Direct Investment (FDI), India secured the third-highest FDI for new projects (greenfield projects) in 2022, showcasing its potential as a robust market. This growth in foreign investment reflects the increasing interest in registering companies and tapping into India's dynamic economy.
Foreign investors must carefully choose the appropriate business structure to establish a successful presence in India. Engaging with business setup consultants in India will help foreign companies select the right entity structure that best suits their goals, ensuring a strong foothold in this vast market.
How Foreign Investors Can Establish a Business in India
Foreign entrepreneurs have several options when it comes to setting up a business in India. The most common pathways include:
1. Indian Company
- Wholly Owned Subsidiary: Fully owned and managed by the foreign parent company.
- Joint Venture: A partnership between a foreign investor and an Indian company, which may involve shared ownership and management.
- Ownership by Foreign Resident: A company wholly owned by foreign individuals.
2. Limited Liability Partnership (LLP)
- Limited Liability Partnership (LLP): A flexible business structure combining elements of both partnerships and companies, with the option of 100% FDI investment through the Automatic Route.
3. Foreign Company
Foreign investors can also operate through a foreign company, with options like:
- Branch Office: Engages in import/export, research, or consultancy activities.
- Liaison Office / Representative Office: Serves as a representative of the foreign parent company in India.
- Project Office: Operates under specific project contracts for a limited period.
Business Structure Options for Setting Up in India
Below is a detailed comparison of various business structures available to foreign entrepreneurs:
| Particulars | Wholly Owned Subsidiary | Joint Venture | Ownership by Foreign Individual |
|---|---|---|---|
| About | Fully owned, managed, and controlled by the parent company | A partnership between foreign and Indian entities to form a separate legal entity | A company fully owned by the foreign individual |
| Ownership | Solely owned by the parent company | Shared ownership among involved entities | Solely owned by the foreign individual |
| Control & Management | Controlled by the parent company | Governed collectively by all involved entities | Controlled by the foreign individual |
| Taxation | Indian taxation rules apply | Indian taxation rules apply | Indian taxation rules apply |
| Liability | Parent company not liable for subsidiary's debts | Liability shared by all entities as per agreement | Foreign individual not liable for debts |
Business Entities in India
Foreign investors can choose among various types of business entities in India, each governed by specific laws and offering different benefits. Below is a summary of the business structures:
| Particulars | One Person Company (OPC) | Private Limited | Public Limited | Limited Liability Partnership (LLP) |
|---|---|---|---|---|
| Governing Act/Law | Companies Act, 2013 | Companies Act, 2013 | Companies Act, 2013 | LLP Act, 2008 |
| Separate Legal Identity | Yes | Yes | Yes | Yes |
| Default Liability | Directors | Directors | Directors | Designated Partners |
| Members (Min/Max) | 1/1 | 2/200 | 7/No Limit | 2/No Limit |
| Directors (Min/Max) | 1/15 | 2/15 | 3/15 | 2 Designated Partners/No Limit |
| Resident Director | 1 Mandatory | 1 Mandatory | 1 Mandatory | 1 Designated Partner |
| Public Subscription | Not Allowed | Not Allowed | Allowed | Not Allowed |
| Income Tax Rate | 17.16% to 34.94% | 17.16% to 34.94% | 17.16% to 34.94% | 31.20% to 34.94% |
| Audit | Mandatory | Mandatory | Mandatory | Mandatory (limit based) |
Business Closure Procedures in India
The business closure process in India is regulated by the law and typically involves several steps. The scenarios for business closure can include:
- Voluntary Closure: When the company opts to close down based on its own decision.
- Involuntary Closure: Closure due to legal actions, financial insolvency, or non-compliance.
- Dissolution of LLP or Company: Process for winding up or liquidation, involving legal procedures and asset distribution.
Each type of business closure must comply with specific regulations under Indian law, ensuring that all obligations are met and the business is formally dissolved.
By understanding these options and structures, foreign investors can make informed decisions and establish their business in India, tapping into the immense growth potential of one of the world's largest economies.
