Agreement

Whenever a foreign national is looking to set up business in India. He must choose the right legal structure to incorporate his business in India.

Choosing the right structure affects not only his business operations but also helps in fewer compliances & lower costs according to his business activities.

There are various legal structures which can be opted by foreign national to setup his business in India. However, advise should be taken from professionals to understand the right structure for the foreigners according to their vision & plans for business in India.

Different structures can be opted for by foreign nationals, which are as follows:

1) Private Limited Company- Setting up Wholly Owned Subsidiary Company-Under this structure, foreign Company shall hold the 100% shareholding of the Company. It becomes the wholly owned subsidiary of the foreign parent Company.

A Private Limited Company shall be formed. It is important to note that foreign company can hold 100% shareholding of the Company in the sectors permitted through automatic route. However, at least 1 resident director has to be appointed in Private Limited Company.

2) Joint Venture- A Foreign Company needs to have a local partner in India to form a joint venture. They need to sign Memorandum of Understanding (MOU) to form a Joint venture in India. An agreement needs to be prepared wherein the terms & conditions shall be laid down by both the parties under JV is being formed.

3) Branch office- A foreign Company can setup the branch office in India. Permission from RBI is required to setup the branch office. Activities of the branch office are restricted.

A branch office can only undertake activities permitted under FEMA guidelines and RBI approval, such as export/import, consultancy services, or research, and cannot engage in retail trading or manufacturing unless specifically approved. This is suitable to those who are testing the Indian market & doesn’t have any long-term plans to stay in India.

4) Limited Liability Partnership (LLP)- An LLP can also be formed by foreign nationals who are setting up business in India.  Under LLP, partners are appointed out of which 1 partner has to be Indian resident. Here, partners can invest the money in LLP in form of Capital Contribution as per the LLP agreement. Prior approval from the RBI is required where 100% FDI is not permitted through automatic routes.

5) Liaison Office – A Liaison office can also be setup by foreign Companies. It is suitable for those who are looking for customers in India. They act as authorized representatives in India. They can’t enter into business activities with Customers in India. They take orders in India from Indian customers on behalf of foreign Company.

Liaison Office acts as a channel of communication between the head office outside India & Indian Clients. It does not undertake any trading/commercial, or industrial activity. It represents the head office in India & promotes imports & exports & technical collaborations between parent Company & Indian clients

Process for setting up the above structures

1)     Private Limited Company

An application has to be made to Register of Companies (ROC) for name reservation. Name is usually reserved for 20 days initially which can also be extended later on.

Post reservation of name, forms like E-spice, INC-9, AGILE PRO-S have to be submitted online along with id proofs of shareholders & directors. In case, foreign company or foreign director is appointed. Make sure that all the related documents like Id proofs, passports, Certificate of Incorporation (COI), MOA & AOA of foreign Company to be apostilled from the country issuing those documents.

ROC verifies the forms & documents submitted. If ROC is satisfied with the submitted documents, a COI is issued alongwith PAN & TAN of the Company.

Further, if shares are issued to foreign Company, then Form FC-GPR has to be filed with RBI within 30 days of allotment of shares.

2)     Branch office-

Approval from RBI is required for obtaining permission to open branch office in India.

Application has to be made to RBI in form FNC alongwith the documents of foreign Companies COI, MOA & AOA, Directors ID proofs alongwith their details have to be provided.

Once RBI gets satisfied with the documents & grants approval for operating Branch office. A form FC-1 has to be submitted on ROC portal alongwith MOA, AOA of the Company.

3)     Laision Office- Liaison Office acts as channel of communication between head office outside India & Indian Clients. It does not undertake any trading/commercial or industrial activity.

Application has to be made to RBI in form FNC alongwith the documents of foreign Companies COI, MOA & AOA, Directors ID proofs alongwith their details has to be provided.

Once RBI gets satisfied with the documents & grants approval for operating Branch office. A form FC-1 has to be submitted on ROC portal alongwith MOA, AOA of the Company.

4)     Project Office- This setup is preferred when the foreign company is setting up the entity for a specific project only. It is not planning to have a long-term presence in India. They are setting up the structure for a specific project.

Procedure for setting up the project office is also similar to Branch office & liaison office.

 Frequently asked questions by foreign nationals while setting up business in India

Q1. What is the easiest structure for a foreign national to start with?

If you seek full control and long-term operations, a Wholly Owned Subsidiary (Private Limited Company) is ideal. For market testing or liaison purposes, consider a Liaison Office or Branch Office.

Q2. Can I own 100% of the business as a foreigner?

Yes, India permits 100% foreign ownership in many sectors via the automatic route (no RBI approval required). However, sectoral restrictions apply (e.g., defense, telecom, agriculture

Q3. Do I need a physical office in India?

Yes. All business entities must have a registered office address in India, which can be a rented or owned premise.

Q4. Can I repatriate profits to my home country?

Yes, profits can be repatriated after payment of applicable taxes. RBI and FEMA guidelines must be followed.

Q5. What structure should I choose if I only want to explore the Indian market initially?

A Branch Office or Liaison Office is suitable for initial market exploration without committing to full business operations.

Final Recommendations

·        Choose your business structure based on objectives, sector, and duration of operations.

·        Always check the latest FDI policy, FEMA norms, and RBI directions.

·        Consult experienced professionals such as a Company Secretary, Chartered Accountant (CA), or corporate lawyer for guidance.

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