How Foreign Companies Start a Business in India

How Foreign Companies Start a Business in India

As India is developing country and that too one of the fastest developing country in world, it is normal that other countries wanted to invest in India. India is actually a hub doing business as the cost of production in India is low which ultimately increases the Demand curve of a product or service.

With each year passing the foreign entities are coming and doing business in India. Now the question arises how a foreign entity runs a business in India. Let me explain you the basic question related to this in simple question and answer way.

What is Foreign Company?

As per section 2(42) of the Companies Act, 2013, a foreign company means any company or body corporate incorporated outside India which:-

(a) has a place of business in India whether by itself or through an agent, physically or through electronic mode; and

(b) conducts any business activity in India in any other manner.

What are ways that a foreign company can run business in India?

A foreign company which is desirous of entering and doing business in India can enter in any of below given ways:-

As an Indian Company:- A Indian Limited company is incorporated in India and the shares are held by foreigners in below given ways.

  • Wholly Owned Subsidiary:- For an Indian company to Become Wholly Owned Subsidiary Company of a Foreign Company, a foreign company needs to invest 100% FDI in that Indian company through automatic route, for the purpose of foreign company registration in India.
  • Joint Venture:- It is important for the foreign company to elect a local partner with whom it wants to enter into a joint venture. A Memorandum of Understanding or a Letter of Intent is to be signed which will state the basis for the joint venture agreement. A thorough discussion of all the terms should be done and they must be consistent with regional as well as international law.
  • Subsidiary Company:- In this Foreign company hold shares of Indian company upto the limit of 49.99% of the total shares of the company.

As an Foreign Company:- A foreign company get register under the Companies Act, 2013 to start business in any of below given ways:-

  • Branch Office:- A branch Office is established by foreign company in India. Foreign company must be large business and provide proof of profitability.
  • Liaison Office:- Liaison office can be established for all liaison activities in India. All the expenses of liaison office must be met through foreign remittance from parent company.
  • Project Office:- This office can be established to execute projects awarded to a foreign company by an Indian Company. Approval of from Reserve Bank of India may be required.

Starting a private limited company is the coolest and fastest way to set up in India. Foreign Direct Investment (FDI) of up to 100% into a public limited or private limited is permitted under the FDI policy.

A foreign company doing business in India can also close down its business alike an Indian company. However, its process is little varies.

A wholly owned company or subsidiary can go for winding up or striking of the name of the company from the register of companies as per the Companies Act, 2013 as well as Reserve Bank of India.

Liaison Office/ Project Office/ Branch Office are closed in two (2) steps file application of closure of Liaison Office with ROC in E-form FC-3 and then Filing application for closure of Liaison Office with RBI through designated AD Category – I bank and remittance of proceeds abroad and closure of bank account in India.

Once ROC closure has taken place, the application for winding up/closure of Liaison Office may be submitted along with the following documents with designated AD Category – I bank:

Copy of the Reserve Bank’s approval for establishing the LO.

Auditor’s certificate : Along with a statement of assets and liabilities of the applicant and indicating the manner of disposal of assets and the manner how the remittable amount has been generated;

Confirming that all liabilities in India including arrears of gratuity and other benefits to employees, etc. of the office have been fulfilled.

Confirming that no income accruing from sources outside India (including proceeds of exports) has remained un-repatriated to India.

Confirmation from the applicant/parent company that no legal proceedings in any Court in India are pending against the LO.

A report from the Registrar of Companies (ROC) regarding compliance with the provisions of the Companies Act, 2013.

The designated AD Category – I banks will confirm that the LO had done their respective compliances.

Any other document/s, required by Reserve Bank of India/AD Category-I bank while granting approval.