Selecting an appropriate form of a business is the most important aspect of setup. India has a Federal Structure of Governance and accordingly both the Central Government and State Government legislations play an important role in operation and governance of businesses. There are further impacts of central & state legislations based on nature & size of the business, business transactions with related & other parties, locations etc. However the most important factor is the business activities planned to be carried out. i.e. What exactly you plan to do in INDIA ?
In this article, our focus is to explain various format of a business based on their planned activities in India.
Testing the Market
You may only intend to test the Indian Market and promote your products for a better insight before you decide to invest. Reserve Bank of India (RBI) www.rbi.org.in, which is a Central Bank of India permits such business to form a ‘Liaison Office-LO” in India with a pre-condition that there will not be any Revenue Generating Activities therein.
Execution of Projects
As a growing economy, India has a lot of need to develop the infrastructure. Indian Government has announced several projects and many of them are already in progress. The Indian Government and also Private Entities do have a lot of thrust and need to invest into new technologies and hence assign projects directly to foreign entities. Such projects are generally time bound projects and after execution thereof, the contract terminates. In such a case, there is no need to open a fully fledged business entity in India to execute the assigned project, however to establish a “Project Office- PO” only. More information related to registration of Project Offices in India by foreign entities can be gathered at http://rbidocs.rbi.org.in/rdocs/notification/PDFs/11MCES010710_F.pdf
Extension of Head Office
Business which requires opening an extension of their business entity in Home Country is required to open a Branch Office- BO. BO in India is a foreign company only and for all operational matters in India, it’s considered as a Foreign Company. Activities such as mnufacturing are not allowed to be carried out in a BO. For more information click on: http://www.rbi.org.in/Scripts/bs_viewcontent.aspx?Id=1285
Business Partnerships
In this case, local representation in India is not required and business partnership can be in the form of appointing a dealer, distributor, agent etc. Joint ventures also help in sharing the resources and localization in the market.
Resident Entities in India
- Proprietorship/Partnership Firm : Restricted to residents of India only and Foreign Direct Investment is not permitted. For more information click on: http://www.delhi.gov.in/wps/wcm/connect/doit_industry/Department+of+Industries/Home/Public+Service/Public+Services
- Single Person Company : The person must be an “Indian Resident” and hence it’s not a suitable option for a Foreign Entity or any
entrepreneur who is Non-Resident in India. More information can be found by clicking the link www.mca.gov.in/MCA21/OPCfaq.html
- Limited Liability Partnerships-LLP : The features of a LLP remain similar to a “Partnership Firm”. As a LLP is registered by ROC, it enjoys a higher degree of business credential compared to a firm registered by “Registrar of Firms”
- Joint Venture- JV : JV is a partnership of two or more businesses having similar of different legal form of their business. Business objective of a JV is governed by the “Joint Venture Agreement” however statutory compliances of all the JV partners are governed by their respective legal formats.
- Limited Liability Company (Private/Public): Foreign resident, foreign Company can be a Shareholder. “Limited” concept defines the liabilitities of the owners/shareholders to the extent of Share Capital of the entity. Further information to register a Company in India can be checked by clicking the following link: http://www.mca.gov.in/MinistryV2/RegisterNewComp.html
Thanks & Best regards,
Shashi Mohan/Delhi/India