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How to incorporate business in India as foreign nationals?

The Indian government permits foreign individuals to establish and own businesses in the country. Foreigners can choose to invest in an already operational Indian enterprise through foreign direct investment or opt to initiate a fresh company registration in India that has foreign share ownership. Additionally, they can set up an Indian subsidiary for any pre-existing foreign company.

Here’s a comprehensive guide on the process of registering a company in India with foreign equity participation.

Choose the Type of Business Entity

Foreign nationals typically opt for the following business entities:

  • Wholly Owned Subsidiary Company (WOS): A company in which 100% shares are held by a foreign company.
  • Can establish a wholly owned subsidiary in sectors where 100% foreign direct investment (FDI) is permitted.
  • Can operate as an Indian company and be subjected to Indian regulations.
  • Profits can be repatriated, subject to guidelines by RBI.
  • Joint Venture (JV) with an Indian Partner: A business arrangement where the foreign company partners with an Indian company.
  • Shareholders agree to create a new entity and share profits, losses, and control.
  • Combines the strengths and resources of both companies.
  • Preferred in sectors where 100% FDI isn’t allowed.
  • Limited Liability Partnership (LLP): A partnership where partners have limited liability.
  • Allowed in sectors with 100% FDI under the automatic route.
  • Less regulatory compliance compared to a subsidiary.
  • Flexibility in management and operations.
  • Branch Office, Representative Office, or Project Office: An extension of the parent foreign company, not a separate legal entity.
  • Can engage in the activity the parent company is involved in.
  • Earnings generated are allowed to be repatriated.
  • Suitable for foreign companies looking to test the Indian market.

Documents and Procedures for Foreign Companies Setting Up Businesses in India

India’s business landscape is diverse, and foreign entities can explore multiple avenues. The registration and documentation process varies based on the business type. Here’s an overview of the necessary documents and procedures:

1. Joint Venture Procedure:

  • A Memorandum of Understanding (MoU) is the charter of the company outlining the basic framework of the joint venture.
  • Local and foreign entities must collaboratively agree on the terms, ensuring alignment with local and global regulations.
  • Essential elements in the MoU include conflict resolution, shareholding patterns, applicable law, transfer of shares, confidentiality, intellectual property rights, non-compete, and non-solicit clauses.

2. Company Incorporation:

  • Firstly, one must reserve a name for the new company. Part A of the SPICe+ form provided by MCA lets you apply for name reservation.
  • Secondly, you must apply for a DSC (Digital Signature Certificate) for the to-be directors of the new company. You need a minimum of two directors for incorporation and both need to have a DSC. For DSC for Foreigners, you must submit all the required documents apostilled and notarized.
  • Finally, you must fill out Part B of the SPICe+ form for incorporation of a new company and submit the same with all the required attachments.

Apart from that, you also need to provide the following documents:

  • For foreign nationals residing abroad:
  1. Notarized (notarized by a public notary) and apostilled (by a competent authority of their country of residence) copies of their passport.
  2. Notarized (notarized by a public notary) and apostilled (by a competent authority of their country of residence) copies of address proof (Utility bill, driving license etc.).
  • Foreign nationals residing in India have to submit the following documents. (The Consulate of the Foreign Embassy in India must attest all the documents).
  1. A copy of their resident permit
  2. Copy of their passport
  3. Copy of their Business visa
  4. A copy of their Bank statement/utility bill (not older than two months)

3. Liaison Office Registration:

  • The foreign entity should have consistent profitability and a net worth not below USD 50,000.
  • Applications are sent to the Foreign Exchange Department via a chosen Authorized Dealer Category–I Bank (AD).
  • Necessary documents include an English version of the certificate of incorporation, MOA/AOA, and the latest audited balance sheet validated by the Indian Embassy or a Notary Public.
  • Upon approval, the Reserve Bank of India (RBI) assigns a unique identification number to the liaison office.
  • Additional steps include securing a Permanent Account Number (PAN) from the Income Tax Department and obtaining approval from the Insurance Regulatory and Development Authority (IRDAI).

4. Branch Office Setup:

  • The foreign business should be involved in manufacturing or trading with a net value of at least USD 1,00,000 in its homeland.
  • Applications are directed to the Foreign Exchange Department through an authorized AD.
  • Documentation includes the English variant of the incorporation certificate, MOA/AOA, and the recent audited balance sheet certified by the Indian Embassy or a Notary Public.
  • The RBI, post approval, issues a unique identification number to the branch office.
  • Further steps involve procuring a PAN from the tax authorities and obtaining permissions from RBI under the FEMA 1999 and IRDA.
  • It’s crucial to ensure that all processes are transparent and compliant with Indian regulations. Seeking local legal consultation is highly recommended for smooth business establishment.

Once the above steps are duly completed and the Ministry of Corporate Affairs (MCA) is satisfied, they will issue the Certificate of Incorporation.

FAQs on Starting a Company in India by a Foreigner

Q1. How long does the whole process of registering a company in India take?

Ans: The Whole process of Company registration would take around 30-60 days subject to Ministry’s approval.

Q2. Would there be any requirement for registered capital? How much of it? Is it possible to inject capital into phases?

Ans: Yes, there would be a requirement for registered capital. Initially it can be as less as INR 1 lakhs or more as per your convenience and the same can also be increased at a later stage or periodically.

Q3. What is registered capital and whether the government will verify capital or not?

Ans: Registered capital is the one that you will infuse in the company at the time of registration i.e., the total amount of capital registered for the registration of a foreign invested company by the parent company.

The registered capital would be verified by the government as per the FDI policy. Hence you need to deposit the amount of the registered share capital in the company’s bank account post incorporation.

Q4. Is there any limitation or special requirement for company name?

Ans: The name must be unique and must not be resembling with any other company already registered in India. However, we can insist on getting a similar name as that of a parent company.

Q5. Do we need to register for GST? What are the conditions for compulsory registration of tax numbers?

Ans: The companies that are dealing in Import export business will require the GST registration. Moreover, the Companies whose turnover exceeds INR 40 lakhs will require to register for GST.

Q6. What is the Director Identification Number (DIN)?

Director Identification Number is a unique identification number assigned to all existing and proposed Directors of a Company. It is mandatory for all present or proposed Directors to have a Director Identification Number. Director Identification Number never expires, and a person can have only one Director Identification Number.

Q7. What documents should we provide to open a bank account in India?

Ans. For bank account opening in the name of company, company papers, for instance Certificate of incorporation + MOA + AOA + PAN card must be submitted to the bank. Certain banks will provide some additional board resolutions to be prepared and signed by directors. These need to be submitted additionally.

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