India is a favored destination for foreign investment, particularly for businesses in sectors such as IT, telecommunications and services. Overall, the investment climate in India has improved immensely since the opening up of the economy in 1991 and inward FDI has consistently increased on a year-on-year basis.
When entering a new market, it’s important to be aware of the different company incorporation options available to you as a foreign investor. In this guide, we cover the different types of legal entities available and the necessary steps to set up a company in India.
Private Limited Company in India (Pvt Ltd)
This is the most popular type of business entity among foreign investors in India and offers a great deal of flexibility to entrepreneurs in the market. A Pvt Ltd offers limited liability, free and easy transferability of shares and businesses of this type can own real property and assets in its name.
As per the Foreign Direct Investment (FDI) Policy of India, it is possible for foreign investors to have 100% foreign ownership of a company in India in certain industries. For example, under the Automatic Route, investments made do not require prior approval from the Indian government in sectors including IT, telecommunications and B2B e-commerce. FDI in business activities not covered by the Automatic Route requires prior approval from the India government. A full list of business scopes which fall into the Automatic and Government Route can be found here.
Requirements for setting up a Private Limited Company (Pvt Ltd)
To register a Pvt Ltd company, there must be at least 2 shareholders and directors. A shareholder can be a natural person or a corporate entity, however only natural persons can assume the role of directors and at least one director must be an Indian citizen and resident. The directors and shareholders must register their details in public records.
The 2015 Companies Amendment Act removed the minimum paid-up capital requirement for incorporating private (as well as public) companies in India.
Public Limited Company in India (Ltd)
Under the Companies Act (2013), a ‘public company’ refers to a company which is not a private company. A Ltd company has limited liability and offers shares to the general public which can be acquired by anyone. It is possible for investors to convert their private companies to public companies as they grow, subject to approval from the Indian government.
Requirements for setting up a Public Limited Company in India (Ltd)
A Ltd company requires a minimum of 3 directors and 7 shareholders. There is no limit on the maximum number of shareholders for this type of structure. Shares in a Public Limited Company are offered to the general public and thus companies of this type must comply with government regulations. A chartered account or company secretary is required to audit the company and it must submit accurate financial statements to the Indian authorities within 6 months from the end of the financial year.
Limited Liability Partnership India (LLP)
An LLP gives the benefits of limited liability of a company and the flexibility of a partnership. It is also possible to make full FDI under the Automatic Route by using a LLP for market-entry, making it a popular option for investors wishing to access the Indian market.
Requirements for setting up a Limited Liability Partnership India (LLP)
An LLP must have at least 2 designated partners who shall be individuals, with at least one of them residing in India. There is no minimum capital required for LLPs.
Alternative entity options
In addition to company incorporation in India, foreign nationals can also do business in the country by setting up one the following alternative structures:
Joint Venture in India (JV)
A Joint Venture in India is a partnership between two or more persons (natural or legal entities) who enter into an agreement to do business together or work on a particular business project. In India, there are no separate laws governing joint ventures in India and are thus subject to the same laws that govern other Indian company incorporation options.
Project Office in India (PO)
Foreign companies carrying out specific, temporary projects in India can setup a project office. This type of entity is ideal for companies to establish their presence in the country for a limited period of time and are considered temporary business entities as once the project is finished, the entity is terminated. It is common for companies in the construction, development and oil industries to opt for this type of entity. A foreign company may open a project office in India (PO) provided they have secured a contract from an India company to execute a project in the country. A project office in India (PO) is permitted to remit profits of the project net of applicable taxes out of India.
Representative Office (RO) or Liaison Office
A Representative Office in India (also known as a Liaison Office) is a low-risk way by which a foreign parent company can establish business presence in the country. Representative Offices in India can only undertake liaison activities, i.e. act as a means of communication between the parent company’s headquarters and relevant business contacts in India. As such, the role of Representative Offices in India is limited to gathering information about possible market opportunities and providing information about the company’s products to prospective Indian customers.
To setup a Representative Office in India, the parent company must submit records of generating profits in its home country within the last 3 years and have a net worth of no less than USD 50,000.
Branch Office in India
A Branch Office in India can exercise more flexibility than a RO. Unlike a RO, a Branch Office may earn revenue in India and conduct a wider scope of business including importing/exporting goods, and providing consulting services, among others. The name of the Branch Office must be the same as the name of the foreign parent company.
To setup a Branch Office in India, the parent company must have a profit-making track record during the immediately preceding five years in the home country and have a net worth of no less than 100,000 USD.
PEO India: An Alternative to Entering the Indian Market
Depending on your business needs and stage of expansion, it may be more suitable to use a PEO. This is an easy and flexible way of entering the Indian market immediately, without the need to set up an entity straight away. As Asia’s leading PEO/EOR provider, we hire your talent on our payroll in India while they work for you. As your global expansion partner, we can even assist with your transition any one of these legal entities as your business develops.
INS Global: Let us grow your business in India
We understand the complexities involved in expanding to a new market. From the many Indian company incorporation options to dealing with Indian employment law, it’s best to work with a partner with the experience and knowledge of the Indian business landscape so you can grow your business in quickly and in a hassle-free way. INS Global’s expert advisors are on-hand to assist and advise you on the necessary steps to setup a company in India and the most appropriate market entry vehicles, taking into account your short and long-term goals in the market.
Contact us today to learn more about how we can simplify your expansion.