Entry Strategy into India for Foreign Businesses

India is among the fastest growing economies in the world with immense human potential and a large market comprising of over 1.2 billion people. Opportunities in India has attracted a large amount of Foreign Direct Investment into the country and each year the amount of FDI inflow keeps increasing due to more number of foreign businesses starting their operations in India. In this post, the way to setup a business is in India is detailed for foreign companies.

There are mainly two types of entry strategy for foreign businesses in India, registration of a company or establishing a branch/liaison office.

Incorporation of a private limited company is the easiest and fastest type of India entry strategy for foreign nationals and foreign companies. Foreign direct investment of upto 100% into a private limited company or limited company is under the automatic route, wherein no Central Government permission is required. Hence, incorporation of a private limited company as a wholly owned subsidiary of a foreign company or joint venture is the cheapest, easiest and fastest entry strategy for foreign companies and foreign nationals into India.

Registration of Branch Office, Liaison Office or Project Office requires RBI and/or Government approval. Therefore, the cost and time taken for registration of branch office, liaison office or project office for a foreign company is higher than the cost and time associated with incorporation of a private limited company. Further, foreign nationals cannot open branch office, liaison office or project office. Hence, this option is limited to being an India entry strategy only for foreign companies.

Requirements for Establishing a Company in India

To start a company in India, a minimum of two persons and an address in India are required. A private limited company in India must have a minimum of two directors (persons) and a minimum of two shareholders (can be persons or corporate entities). Further, the incorporation rules in India states that one of the Director of the Company must be both an Indian Citizen and Indian Resident (any person who has lived in India for over 186 days is considered an Indian Resident).

The preferred legal entity structure for foreign companies is to establish a company with three Directors, two being foreign nationals from the parent company and one director being a local Indian citizen. Since, there are no requirements for minimum shareholding with the Indian Director, 100% of the shares of the Indian Company can be held by foreign nationals or entities.

An address in India is required to serve as the registered office of the Company. The city in which the registered office address of the company will be setup will also determine the legal jurisdiction applicable for the company. Most foreign companies setup their registered offices in major metros of India like Delhi, Mumbai, Bangalore, Hyderabad, Chennai, etc.,