Setting up of a business in India

Introduction

India, a developing nation, achieved a robust Gross Domestic Product (“GDP”) growth rate of 7.2% in 2022–23, showcasing its rising global significance. India is welcoming foreign investors with open arms through progressive Foreign Direct Investment (“FDI”) policies, emphasizing a business-friendly atmosphere with minimal entry barriers. India’s commitment to economic diversification and innovation is evident in its support for startups, fostering entrepreneurship with policies and incentives.

Economic overview

India, often classified as an emerging or developing market, boasts a substantial presence as one of the world’s most sizable economies. To attract foreign investment, India has taken steps to simplify corporate regulations, making it more appealing for foreign capital. Notably, there has been a noticeable increase in FDI engagement in sectors like retail, aviation, and defense.

Business Opportunities in India for Foreign investors

There are three ways for foreign investors to commence business in India:

1. By establishing a Corporate Entity within the Indian jurisdiction, foreign investors have the option to engage through the formation of a Joint Venture or the creation of a wholly owned Subsidiary.
2. Wholly owned subsidiaries can assume two distinct forms:

• Private Limited or
• Public Limited, contingent upon the prevailing company law regulations.

3. They can establish-

• The Liaison Office, serves as a representative entity to effectively portray the interests of the parent company within the Indian context.
• The Branch Office facilitates engagement in diverse activities encompassing export-import operations, research initiatives, consultancy services, and related pursuits.
• The Project Office, for endeavors defined by contractual obligations, enables the focused execution of activities as per the agreed-upon terms.
• Limited Liability Partnerships (“LLPs”) are subject to the regulations stipulated within the Limited Liability Partnerships Act of 2008. Within this framework, FDI is permissible under the automatic route for LLPs engaged in sectors or activities where 100% FDI is sanctioned through the automatic route. Furthermore, in such instances, there are no accompanying FDI-linked performance conditions.

Authorized Forms of Business Entities in India

1. Private Company– A Private Limited Company is a legally distinct entity established in accordance with the regulations specified in the Companies Act of 2013.

• Forming a private limited company necessitates a minimum of two members, with an upper limit of 200.
• This structure requires the appointment of at least two Directors, with a maximum of 15 Directors.
• A private limited company must appoint a resident Director.
• These entities are obligated to submit an annual financial statement and an annual return to the Registrar of Companies (“ROC”), along with a mandatory audit process.

2. Public company– A Public Company, duly incorporated under the legal framework of the Companies Act of 2013, constitutes a distinct legal entity.

• Fundamental prerequisites for a public company encompass a minimum membership threshold of seven individuals, with no stipulated upper boundary.
• The directorial composition must encompass a minimum of three directors without exceeding fifteen.
• Mandatorily, one of the Directors is required to be a resident.
• A public company facilitates subscriptions to its shares by the general public.
• Regulatory obligations entail the submission of an annual financial statement and an annual return to the ROC, substantiated by the imperative of an audited process.

3. One person Company (“OPC”)- An OPC is a distinct legal entity established in accordance with the provisions set forth in the Companies Act of 2013.

• Unique to OPCs is the stipulation of a sole member for company formation, prohibiting any additional membership.
• Directorship composition necessitates a minimum of one Director, while the ceiling is set at fifteen.
• An OPC mandates the appointment of at least one resident Director.
• Compliance requisites encompass the obligatory submission of an annual financial statement and an annual return to the ROC, accompanied by a mandatory audit process.

4. Limited Liability Partnership (“LLP”)- An LLP represents a distinct legal entity, duly registered under the framework of the Limited Liability Partnership Act of 2008.

• Essential prerequisites encompass a minimum partnership of two individuals for the establishment of an LLP.
• An imperative requirement entails the appointment of a minimum of two Designated Partners, of whom one is mandated to be a resident of India.
• Compliance imperatives entail the obligatory submission of an Annual Statement of Solvency and an annual return to the ROC, further stipulated by the necessity of an audit in instances where turnover surpasses INR 40 lakhs or contribution exceeds INR 25 lakhs.

How we can help ?

Seeking professional help when establishing a company in India is imperative for a successful and compliant venture. With the country’s intricate legal, tax, and regulatory landscape, engaging legal, financial, and business experts can streamline the process, ensure adherence to local laws, optimize financial strategies, and foster a deeper understanding of the Indian market. Our professional guidance is instrumental in overcoming challenges and unlocking the immense potential of the Indian business environment.