India is amongst the fastest-growing economies globally, with substantial human potential and a large market comprising over 1.2 billion people. The opportunities present in India have attracted a large amount of Foreign Direct Investment (FDI) into the country. Each year, the FDI inflow increases due to many foreign businesses establishing their operations in India.
However, foreign companies have to follow the rules and guidelines laid down by the Companies Act, 2013, the Companies (Registration of Foreign Companies) Rules, 2014, RBI guidelines, and FEMA to establish a company in India.
Foreign Company Under the Companies Act, 2013
Sec 2(42) of the Companies Act, 2013 (‘Act’) defines a foreign company as a body corporate or company that is incorporated outside India, but-
- Has a business place in India, whether through an agent or by itself, either physically or through electronic mode
- Conducts business activity in India in any other manner
What are the Ways in Which Foreign companies can be Registered in India?
A foreign national can establish a foreign company as a private limited company in India. Establishing a private limited company is the fastest way to set up a company in India. FDI of up to 100% into a private limited company is permitted under the FDI policy under the automatic route. A foreign national can incorporate a private limited company as a joint venture or a wholly-owned subsidiary.
Joint venture
A foreign entity will elect a local partner in India with whom it wishes to enter into a joint venture to operate its business in India. A Letter of Intent or Memorandum of Understanding (MOU) is signed between the foreign entity and the local partner, which will state the joint venture agreement basis. The joint venture agreement contains all the business terms, and it must be consistent with regional and international law.
Wholly-owned subsidiary
A foreign national/company can invest 100% FDI in an Indian company through the automatic route for the purpose of registering foreign in India. When a foreign entity invests 100% FDI in an Indian company, the Indian company will become a wholly-owned subsidiary of the foreign entity/company.
A foreign company can register a liaison office, project office or branch office in India to carry on its operations in India. However, opening these offices requires RBI or government approval.
Liaison office
A foreign company can establish a liaison office for all liaison activities in India. The parent company (foreign company) will meet all the expenses of a liaison office through foreign remittance.
Project office
A foreign company can establish a project office in India to execute projects awarded to them by an Indian Company. However, to establish such a project office, the foreign company may be required to obtain approval from the Reserve Bank of India.
Branch office
A foreign company can establish a branch office in India. To establish a branch office, the foreign company must be a large business and provide proof of profitability.
Foreign Company Registration Process in India
Joint venture registration process
- A joint venture is a contract/arrangement where two or more parties get together to run a business or achieve a commercial object.
- To establish a company in India through a joint venture, the foreign entity/national has to choose a local partner with whom they want to enter into a joint venture.
- Then, the foreign entity and the local partner should sign an MOU or a Letter of Intent.
- The MOU or a Letter of Intent should state the basis for the joint venture agreement.
- The foreign entity and the local partner must negotiate and discuss all the terms of the joint venture agreement thoroughly.
- The joint venture agreement must be consistent with regional and international law.
- It should contain essential matters like dispute resolution agreements, holding shares, applicable law, transfer of shares, confidentiality, board of directors non-compete, etc.
Wholly-owned subsidiary registration process
- A minimum of two directors are required to register a wholly-owned subsidiary, out of which one director must be a resident in India.
- All directors must apply for DIN (Director Identification Number) and DSC (Digital Signature Certificate).
- The Memorandum of Association (MOA) and Article of Association (AOA) must be drafted.
- The shareholders must subscribe to the MOA.
- The company’s name must be reserved through Part-A of the SPICe+ form (company registration application).
- The registration application must be filled (Part-B of the SPICe+ form) on the Ministry of Affairs (MCA) portal.
- The applicant must submit the required documents along with the SPICe+ form. The documents are as follows:
- Address proof of the company
- Indian directors must submit their PAN card, address proof and identity proof.
- Foreign directors must submit their passport and address proof, such as driving license, utility bills or any government license certified by the Indian consular or consulate.
- After submitting the required documents, the applicant must pay the applicable fees and submit the registration application.
- The Registrar of Companies (ROC) will verify all the documents and SPICe+ form.
- When the ROC verifies the correctness of the form, he/she will issue the Certificate of Incorporation and the PAN number.
- The company must open a bank account.
- After the subscription of the company share, share capital documents must be submitted for FDI compliance.
Process of setting up a liaison office
A foreign company can open a liaison office in India with the prior approval of RBI. The process is as follows:
- The foreign company must have a profit-making record during the prior three financial years in the home country. Its net value should not be less than USD 50,000 to set up a liaison office in India.
- The foreign entity should forward the application to establish a liaison office to the Foreign Exchange Department through a designated Authorised Dealer Category–I Bank (AD).
- It should file the English version of the certificate of incorporation/registration or MOA or AOA and its latest audited balance sheet attested by the Indian Embassy or Notary Public in the country of registration.
- The RBI will give the liaison office a unique identification number.
- The foreign company has to obtain PAN from Income Tax Authorities when setting up the liaison office in India.
- All the expenses should be met entirely through inward remittances of foreign exchange from the Head office located outside India.
- If a foreign entity that is also a subsidiary of other company does not fulfil the above condition, it can submit a Letter of Comfort from its parent company if it satisfies the above conditions.
- A foreign insurance company can establish a liaison office after getting approval from the IRDAI (Insurance Regulatory and Development Authority)
- A foreign bank can establish a liaison office after getting approval from the Department of Banking Regulation (DBR).
A liaison office can undertake the below activities:
- Representing the parent company or parent company in India.
- Promoting export or import in India.
- Promoting financial or technical collaborations on the group or parent company’s behalf
- Coordinating communications between the parent or group companies and Indian entities.
- However, it cannot undertake any business activity and earn any income in India.
Process to set up a project office
The RBI prescribes the process for setting up a project office in India by a foreign company when the following conditions are fulfilled:
- A foreign company can establish a project office without prior permission from RBI only when it has obtained a contract from an Indian company for executing a project in India.
- The project should be funded directly by inward remittance from abroad.
- The project should be funded by a bilateral or multilateral International Financing Agency.
- An appropriate authority has cleared the project.
- A company or Indian entity providing the contract has been granted a term loan by an Indian bank or Public Financial Institution for the project.
If the above conditions are not complied with, the foreign entity must approach the RBI for approval to set up a project office.
Process of setting up a branch office of a foreign company
A foreign company can open a branch office in India and conduct business activity with the prior approval of RBI. The process is as follows:
- The foreign company should be engaged in trading or manufacturing activities.
- It should have a profit record during the preceding five financial years and a net worth of not less than USD 1,00,000 in its home country.
- The foreign entity should forward the application to establish a liaison office to the Foreign Exchange Department through a designated Authorised Dealer Category–I Bank (AD).
- It should file the English version of the certificate of incorporation/registration or MOA or AOA and its latest audited balance sheet attested by the Indian Embassy or Notary Public in the country of registration.
- RBI will give the branch office a unique identification number.
- The foreign company has to obtain PAN from Income Tax Authorities when setting up the branch office in India.
- All the expenses should be met entirely through inward remittances of foreign exchange from the Head office located outside India.
- It requires specific approval from the Reserve Bank of India (RBI) under FEMA 1999 and approval from the Insurance Regulatory and Development Authority (IRDA).
- If a foreign entity that is also a subsidiary of other company does not fulfil the above condition, it can submit a Letter of Comfort from its parent company if it satisfies the above conditions.
A branch office can undertake the below activities:
- Import and export of goods.
- Providing consultancy or professional services.
- Undertaking research work in areas in which its parent company is engaged.
- Promoting financial or technical collaborations on behalf of the parent company.
- Representing the parent company in India and acting as a selling or buying agent in India.
- Developing software and providing IT services in India.
- Giving technical support for products supplied by the parent company.
- Foreign airline or shipping company.
- It cannot undertake retail trading activities and manufacturing or processing activities in India, indirectly or directly.
There are tremendous opportunities in India as a foreign company, even in the E-commerce sector, where the government recently allowed 100% FDI. India has liberal and transparent policies on FDI among emerging economies. In India, FDI up to 100% is allowed under almost all activities, except a few.
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