General Aspects
The Indian economy is the world’s Fifth-largest by nominal GDP and thirdlargest by purchasing power parity (PPP). Indian economy is characterised as a developing market economy. The long-term growth perspective of the Indian economy remains positive due to its young population and corresponding low dependency ratio, healthy savings and investment rates, and is increasing integration
Legal Forms of Business Entities
Legal form Feature
Public Limited Company
into the global economy. India has free trade agreements with several nations, including ASEAN, SAFTA, Mercosur, South Korea, Japan and few others which are in effect or under negotiating stage.
Minimum 7 Members are required to start public limited company in India and no restrictions on maximum number of members as per the provisions of the Companies Act, 2013. The public limited companies have more statutory compliances as compared to private company. Shares are offered to the general public at large i.e. anyone can invest in a public limited company. Hence, improves capital of the company.
Remarks
• Public Limited Company can be incorporated by the Foreign promoter if the number of investors in the venture would be more than 7 in numbers.
• Minimum of 3 Directors are required to start a Public Limited Company.
Private Limited Company
Wholly Owned Subsidiary Company
Private Limited company is a type of company which offers limited liability with restrictions on ownership. Minimum 2 members are required to start private limited company in India. The liability of the members is limited to the amount invested in the shares of company. Private companies cannot freely transfer their shares to the public. Since private companies do not freely transfer their shares and involve limited interest by members, the law has granted them several exemptions that public companies do not enjoy.
When foreign company makes 100% FDI (Foreign Direct Investment) in India through an automatic route, the Indian company becomes the Wholly Owned Subsidiary of that Foreign Company. It is treated as Domestic Company under Tax Law and is eligible for all exemptions, deduction benefits as applicable to any other Indian Company. Funding can be made in the form of share capital and Loan.
• Private companies cannot freely transfer shares to the public.
• Private company find it more difficult than public companies to access external financial support.
• Minimum of 2 Directors are required to start a wholly owned subsidiary company in India.
• Companies Act, 2013 permits NRIs, PIOs, Foreign Nationals, and Foreign Residents to act as a director of an Indian Company.
• To become a director of an Indian company, the person must first obtain a Director Identification Number (DIN) after obtaining Digital Signature Certificate.
LLP (Limited Liability Partnership)
LLP form is a form of business model which:
(i) is organized and operates on the basis of an agreement.
(ii) provides flexibility without imposing detailed legal and procedural requirements
(iii) enables professional/technical expertise and initiative to combine with financial risk taking capacity in an innovative and efficient manner
The LLP can continue its existence irrespective of changes in partners. It is capable of entering into contracts and holding property in its own name.
• LLP is an alternative corporate business form that gives the benefits of limited liability of a company and the flexibility of a partnership.
• The LLP is a separate legal entity, is liable to the full extent of its assets but liability of the partners is limited to their agreed contribution in the LLP.
• Foreign Nationals can be a Partner in a LLP. A person can be admitted as a partner as per the LLP Agreement.
Partnership under Partnership Act, 1932
Joint Venture
There should be at least two persons to form a partnership firm in India. Partnership is formed by an agreement-oral or written-among the partners. Partnership deed is charter of the firm and it describe its scope. The partnership firm can be registered with the Registrar of Firm.
A joint venture is a business entity created by two or more parties, generally characterized by shared ownership, shared returns and risks, and shared governance. The parties to a joint venture, i.e. the coventurers, generally execute a written agreement between them. This agreement states details like their obligations, profit/loss sharing ratios, their rights and liabilities, etc.
• Legal formalities associated with formation are minimal, hence it is relatively ease to form. The registration of a partnership is desirable, but not obligatory.
• Foreign Nationals cannot form Partnership in India.
• A joint venture is only a temporary arrangement between two or more parties
• In sectors where 100 percent FDI is not allowed in India, a joint venture is the best medium.
Liaison Office/ Représentative
Office
Prior Approval of Reserve Bank of India (RBI) is required to setup a liaison office in India. As Liaison office cannot enter any commercial activity directly or indirectly. Its role is limited to collecting information about possible market opportunities and providing information about the company and its products to prospective Indian customers.
• Initial Permission is granted for Three Years which could be subsequently extended by the RBI.
• The foreign company should have a minimum net worth of US$50,000
• A Liaison office is required to register itself with the Registrar of Companies (ROC) and to comply with certain procedural formalities, as prescribed under the Companies Act, 2013.
• Liaison Office has advantages like easy operations, less formalities and simple closer procedure.
• Transfer of assets by branch/ liaison offices to subsidiaries or other liaison/ branch offices are allowed subject to prior approval of RBI.
Project Office Foreign Companies planning to execute specific projects in India can set up temporary project/site offices in India for carrying out activities only relating to that project. The Government of India has now granted general permission to foreign entities to establish Project Offices subject to specified conditions. Such offices cannot undertake or carry on any activity other than the activity relating and incidental to execution of the project.
• Project Offices may remit outside India the surplus of the project on its completion, general permission for which has been granted by the RBI.
• It takes about 10 days to receive approval for the project office. The project office must be opened within six months from the date of approval letter. If it is not set up by then, an extension of six months may be granted by the RBI.
Sole Proprietorship Firm
Sole proprietorships begin automatically when a person decides to open a business. There are no documents to file to begin a sole proprietorship.
• Sole proprietor have full control over every aspect of their business, whereas partnerships and corporations have to vote on important firm/ company issues.
• Any profits from the business are just added to the owner’s income for taxation purposes.
• Foreign Nationals can not form proprietorship Firm in India.
One
Person
Company (OPC)
One person company as a company that has only one person as its member. OPC is classified as Private company for all the legal purposes, All the provisions related to the private company are applicable to an OPC, unless otherwise expressly excluded. An OPC can be formed under any of the below categories:
• Company limited by guarantee;
• Company limited by shares
Branch Office
Foreign companies engaged in manufacturing and trading activities abroad are allowed to set up Branch Offices in India for the following purposes:
• Export/Import of goods.
• Rendering professional or consultancy services.
• Carrying out research work, in which the parent company is engaged.
• Promoting technical or financial collaborations between Indian companies and parent or overseas group company.
• Representing the parent company in India and acting as buying/ selling agents in India.
• Rendering services in Information Technology and development of software in India.
• Rendering technical support to the products supplied by the parent/ group companies.
• Foreign airline/shipping company.
• Only natural persons who are Indian citizens and residents are eligible to form a one person company in India. The same condition applies to nominees of OPCs.
• One Person company has lower compliance as compared to a Private Limited Company.
• A branch office is not allowed to carry out manufacturing activities on its own but is permitted to subcontract these to an Indian manufacturer.
• Branch Offices established with the approval of RBI, may remit outside India profit of the branch, net of applicable Indian taxes and subject to RBI guidelines.
• For income tax purposes branch is treated as extension of Foreign Company and on income attributable to business in India is taxable as same of a Foreign Company. Transactions between Branch and Head Office are subject to Transfer Pricing Regulations.
PAN This is a 10-digit alpha-numeric unique identifying number issued by Income Tax Department and is essential for all those wishing to work in India and to obtain a residence permit.
Every person (not being an individual) who enters into a financial transaction of an amount aggregating to INR 250,000 or more shall be required to apply to a tax officer for a PAN. If the PAN of the deductee is not quoted, the rate of WHT will be the rate specified in relevant provisions of the Income-tax Act, the rates in force, or the rate of 20 percent, whichever is higher
• Entities working in India require a Permanent Account Number (PAN).
• PAN card is a mandatory requirement for all tax-paying individuals, partnerships, companies, etc.
• It also serves as an identity proof for a number of purposes.
Residence Permit and Business Visa
A Business Visa with multiple entry facility can be granted for a period up to five years or for a shorter duration as per the requirement. A stay stipulation of a maximum period of six months will be prescribed for each visit by the concerned Indian Mission keeping in view the nature of the business activity for which such Business Visa is granted. Indian Missions can grant Business Visa with 10 years validity and multiple entry facility to the nationals of the United States of America. This visa should be issued with the stipulation that the stay in India during each visit shall not exceed six months.
A Business Visa is strictly given to those who would like to make a businessrelated trip to India such as making sales or establishing on behalf of a company outside of India.
Relevant documents to be submitted alongwith application for a Business Visa
1. The foreign national must have a valid travel document and a reentry permit, if required under the law of the country concerned.
2. Proof of financial standing and expertise in the field of intended business.
3. Documents/ papers pertaining to proposed business activity such as the registration of the company under the Companies Act, proof of registration of the firm with the State Industries Department or the Export Promotion Council concerned or any recognised promotional body in the relevant field of industry or trade etc. -
Transfer of Capital goods/ machineries and equipments
Transfer of Capital goods/ machineries and equipments enabling the approval of RBI, FEMA and also the custom duty under Import policy rules. -
