How Foreign Companies start a Business in India?

With a huge market comprising more than 1.2 billion people and enormous human potential, India is one of the fastest developing economies globally. The business opportunities in India for foreign investors have immensely increased. With every passing year, the amount of Foreign Direct Investment (FDI) inflow keeps on increasing as more and more foreign companies are setting up business in India. This article will provide a detailed account on how foreign nationals and companies can invest in India and set up their business operations.

Entry Route for Foreign Companies in India: 

Any foreign company or national who wants to carry on business operations in India can mainly use the following two types of entry route or strategy. These are as follows-

1. Company Registration: One of the easiest and fastest ways to set up a business is to incorporate a private limited company. 100% Foreign Direct Investments (FDIs) are permissible through the automatic route into such a company. Therefore no prior permission from the Government is required before investing and setting up business in India. It is also the cheapest strategy to enter the Indian marketplace. A private limited company can be registered as one of the given ways-
2. Wholly-owned subsidiary: It is a company registration where the foreign parent company holds 100% stocks.
3. Joint Venture: It is a business module in which a foreign company and an Indian company agree to operate a business together.
4. Establishment of an office:A foreign can also commence a business setup in India by establishing any of the following offices-
5. Branch office
6. Liaison office or representative office
7. Project office

Registration requires prior approval from the Reserve Bank of India (RBI) or the Government of India. Therefore, the amount of time and cost for their registration is also higher than that of the private limited company registration. It is to be noted that foreign companies or nationals cannot directly open a branch office, liaison office, or project office. They require a local representative for the same. Hence, this option is a limited entry strategy for setting up business in India.

What are the requisites/requirements for company registration in India?

For starting a company in India, these are the minimum requirements as laid by the Companies Act, 2013 and rules-

1. Minimum of two persons and an Indian address.
2. At least two directors with one of them being an Indian resident and citizen who have lived in India for more than 186 days in total.
3. Minimum of two shareholders. They can be a corporate entity or an individual.
4. As per the preferred legal entity structure for foreign companies, they are setting up business in India is to be done with three directors. One of them is an Indian director and the other two being foreign nationals. In such companies, there are no minimum shareholding requirements for an Indian director. Therefore, 100% shares of the Indian company can be held by foreign companies or individuals.
5. A registered place of business in India is also mandatory. Which legal jurisdiction applies to the company is determined by the city or state where it has been established.

What are the document requirements for company registration in India?

The foreign directors are required to submit the following documents duly verified by a notary or Indian embassy in their home country-

1. Copy of their passport
2. Address proof such as bank statement/ driving license etc.

Where a corporate enterprise is becoming a shareholder in the Indian company for business setup in India, the following documents are required-

1. A resolution from the Board of the foreign company that authorizes the investments done in the Indian company.
2. A copy of the notice to the directors and shareholders.
3. Incorporation certificate of the foreign company.

What are post registration compliances in India?

Once the registration procedure of the foreign company is completed, the following formalities are to be completed-

1. They are opening up a bank account for the company in India. The Indian director in the company can do this.
2. The company’s foreign direct investment is to be reported to the Reserve Bank of India after the bank account is opened. This step is necessary to make sure that the business is compliable with all the laws and regulations and is ready to commence operations in India.