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Foreign Companies

A foreign company can enter the market of India and set up business operations in India by following:

As Indian Company

  • Joint Venture Company
  • It is an arrangement where two or more parties cooperate to achieve a commercial object or run a business. It may take various forms like Company, LLP, partnership etc. it can be on a long term basis like running for perpetuity or for a limited time based on the object. It can involve an entirely new entity or existing business. Hence it is a very flexible concept. If any foreign partner or NRI is involved in a joint venture it requires governmental approval either from RBI or FIPB. Approval from RBI has to be taken it is covered under the automatic route. In any other case, approval from FIPB is necessary. The entity has to select a local partner with whom you want to enter into joint venture then a Memorandum of Understanding or a Letter of Intent is to be signed which will state the basis for the joint venture agreement. All the terms should be discussed thoroughly and negotiated and must be consistent with regional as well as international law. It should address the important matters like Dispute resolution agreements, law Applicable, holding shares, Transfer of shares, Board of Directors Non-Compete, Confidentiality etc

  • Wholly Owned Subsidiary Company
  • A foreign company invests 100% FDI in Indian company through automatic route then it becomes Wholly Owned Subsidiary Company of that Foreign Company. Like if XYZ of US owns 100% shares in AB Ltd of India then AB Ltd becomes subsidiary company of XYZ It is an entity whose whole share capital is in the hand of a foreign corporate body. It can be a private company limited by guarantee or shares or an unlimited liability company

As Foreign Company

Liaison Office or Representative Office

    • For setting up a Liaison office or representative office in India the criteria has been prescribed by RBI.
      • They must have a profit making record in the immediate preceding 3 financial years in the home country and their net value should not be less than USD 50,000
      • A subsidiary of other company which does not satisfy the above condition can submit a letter of comfort from their parent company if the parent company satisfies the above condition.
      • All the expenses are to be met entirely through inward remittances of foreign exchange from the Head Office outside India.
    • It requires a specific approval of RBI under FEMA 1999 as well as approval from the Insurance Regulatory and Development Authority (IRDA).
    • The application for establishing the office will be forwarded by the foreign entity to RBI through a designated Authorised Dealer Category–I Bank
    • Required documents should also be filed with application including an English version of the Certificate of Incorporation/Registration or MOA & AOA attested by the Indian Embassy/Notary Public in the Country of Registration, along with the latest Audited Balance Sheet of the applicant entity
    • The office will be given a Unique Identification Number by RBI. It has to obtain PAN from Income Tax Authorities when setting up the office in India.

It can undertake following activities

  • Representing parent company in India
  • Promoting import/export in India
  • Promoting technical/financial collaborations on parent company behalf
  • Coordinating communications between parent/group companies and Indian entity
  • It cannot undertake any business activity and cannot earn any income in India.

Project Office

RBI prescribes the setting up of Project office in India by a foreign company.

  • A foreign company can establishment office without the prior permission from RBI only when they have secured a contract from an Indian company to execute a project in India and
    • It is funded directly by inward remittance from abroad or
    • It is funded by a bilateral or multilateral International Financing Agency or it has been cleared by an appropriate authority or
  • A company or entity in India providing the contract has been granted Term Loan by a Public Financial Institution or a bank in India for the project
  • If the above conditions are not met the foreign entity has to approach the RBI for the approval.

Branch Office

A Foreign company can conduct business activity in India by opening a branch office with the prior approval of RBI.

  • 1. The company should be engaged in manufacturing or trading activities.
  • 2. It should have a profit in the immediately preceding five financial years and should have a net worth of not less than USD 100,000 in its home country.
  • 3. The subsidiary company of other if does not fulfil the above condition then they can submit a Letter of Comfort from their parent company if parent company fulfils the above condition.

It can undertake following activities:

  • Import & Export of goods.
  • Providing professional or consultancy services.
  • Carrying out research work in area which its parent company is engaged
  • Promoting technical/financial collaborations on behalf of the parent
  • The representing parent company in India and acting as buying/selling agent in India.
  • Providing IT services and developing software in India.
  • Providing technical support for products supplied by the parent
  • Foreign Airline/ Shipping Company.

The statutory bodies, which mainly exercise jurisdiction over foreign companies, are:

  • The Customs & Central Excise Department
  • The Commercial Taxes Department
  • The Income Tax Department
  • The Reserve Bank of India
  • The Department of Industries
  • The Registrar of Companies

Additionally, few more entities are available for operating business. Some of them are available only to foreign investors/ companies and some to all. There are also specific guidelines that should be followed and approvals may need to be taken to establish these entities.

  • Development Centre
  • Research Centre
  • Sales Office
  • Marketing Office
  • Vendor management Office
  • Procurement Office

All these entities are more of generally used terms/ offices rather than a legal entity. These offices needs to be one of the above listed company type to obtain a legal entity.

Documents Required

  • Address proof of the office and if accommodation is rented then latest electricity bill.
  • For Indian citizen
    • PAN card mandatory
    • Address proof
    • Photograph ID proof like passport, Aadhar card or driving license.
  • For foreign national
    • Passport mandatory
    • Address Proof
    • Photograph ID Proof like any government license or document containing name in full, photo and date of birth
    • d. Documents submitted must be certified by the Indian Consular or consulate.

Procedure

  • It requires 2 minimum shareholders, directors.
  • All directors have to apply for DIN (Director’s Identification No.) and digital signature certificate.
  • In Form INC-1 application for the name of the company has to be filed.
  • MOA and AOA have to be drafted and then a subscription to MOA has to be done by shareholder and appropriate persons.
  • When the registrar of company approves, the applicant has to file form INC-7 (Application for Incorporation of Company), form DIR-12 (Particulars regarding appointment of directors, the key managerial personnel and any changes in them) and form INC-22 (Notice of location or change of address of the registered office of the company) along with MOA and AOA
  • Pay ROC online fees and stamp duty as per the authorized capital of the company.
  • The registrar verifies all the documents and Form INC-22 and DIR-12 are approved and INC-7 is verified.
  • When the registrar is satisfied with the documents certificate of incorporation is sent.
  • When the registrar is satisfied with the documents certificate of incorporation is sent.
  • Apply for PAN card and for the opening bank account of the company
  • After subscription of share, capital documents have to be submitted for FDI compliance.
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