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Foreign Company Registration Procedure
Foreign Companies can set up their operations in India through:
• Liaison Office/Representative Office
Such offices can undertake any permitted activities. Companies have to register themselves with Registrar of Companies (ROC) within 30 days of setting up a place of business in India.
a) Liaison Office/ Representative Office
Liaison office acts as a channel of communication between the principal place of business or head office and entities in India. Liaison office cannot undertake any commercial activity directly or indirectly and cannot, therefore, earn any income in India. Its role is limited to collecting information about possible market opportunities and providing information about the company and its products to prospective Indian customers. It can promote export/import from/to India and also facilitate technical/financial collaboration between parent company and companies in India.
Approval for establishing a liaison office in India is granted by Reserve Bank of India (RBI).
b) Project Office
Foreign Companies planning to execute specific projects in India can set up temporary project/site offices in India. RBI has now granted general permission to foreign entities to establish Project Offices subject to specified conditions. Such offices cannot undertake or carry on any activity other than the activity relating and incidental to execution of the project. Project Offices may remit outside India the surplus of the project on its completion, general permission for which has been granted by the RBI.
Foreign companies engaged in manufacturing and trading activities abroad are allowed to set up Branch Offices in India for the following purposes:
• Export/Import of goods
A branch office is not allowed to carry out manufacturing activities on its own but is permitted to subcontract these to an Indian manufacturer. Branch Offices established with the approval of RBI, may remit outside India profit of the branch, net of applicable Indian taxes and subject to RBI guidelines Permission for setting up branch offices is granted by the Reserve Bank of India (RBI).
Assistance and signatory services for opening and operating Bank account in India with all major international banks are also provided.
Our service list allows you to pick and choose to specifically match your needs. Our outsourcing capability allows you to achieve India fiscal compliance cost-effectively. We look after the peripheral issues leaving your company time to concentrate on what’s really important: succeeding in the India.
Foreign Company Registration in India
A foreign company can commence operations in India in one of the many different legal forms as discussed in the article. 100% foreign equity is allowed in Indian companies, subject to equity caps in respect of the area of activities under the Foreign Direct Investment (FDI) policy of India. If a company is incorporated in India, even if it is wholly owned by a foreign company, it is treated on par with domestic companies.
Joint Venture Company
In India, no legal definition as such has been given to Joint Venture Company (JVC). JVCs in India typically comprise two or more individuals/companies, one of whom may be non-resident, who come together to form an Indian private/public limited company, holding agreed portions of its share capital.
A Joint Venture Agreement, known as shareholders Agreement prescribes the number of directors on the board, the quorum for board meetings and general meetings, the day to day management of the company, procedure to be followed on the death or bankruptcy of a joint venture partner, etc. Shareholders Agreements and the Articles Of Association (bylaws) of the joint venture company form the basis of the Joint Venture. Usually, JVC partners cannot enter into activities competing with the JVC. Shareholders agreements contain specific provisions in this regard. Non- competition clause can be included in the agreement.
Generally Indian JVCs have a 51%- 49% equity ratio between the foreign and Indian partners, respectively. A majority of share gives voting privilege hence foreign investors by virtue of their investment potential seek an upper hand and secure a majority stake in equity. There are no restrictions on repatriation of earnings from the JVC.
The typical arrangement in a JVC is as below
• Two or more parties subscribe to the shares of the JV Company in agreed proportion, in cash, and start a new business.
• Two parties, (individuals or companies), incorporate a company in India. Business of one party is transferred to the company and as consideration for such transfer; shares are issued by the company and subscribed by that party. The other party subscribes for the shares in cash.
• Promoter shareholder of an existing Indian company and a third party, who/which may be individual/company, one of them non-resident or both residents, collaborate to jointly carry on the business of that company and its shares are taken by the said third party through payment in cash.
A foreign company can invest in an Indian company through a joint venture agreement in the sectors which are open for foreign investments. Some areas are exclusively reserved for public sector and some are excluded for foreign participation such as real estate, agriculture, plantation etc. So it is important to check if there is any foreign investment cap for the sector in which the proposed JVC will operate. Approval of Reserve bank of India (RBI) or Foreign Investment Promotion Board (FIPB), as applicable, must be obtained for acquiring shares of the company and establishing place of business in India.
JVCs generally have limited scope and duration. The participants in the venture continue to exist as separate entity and the joint undertaking is for a specific purpose and the roles of the participants are defined and agreed in the Memorandum of Understanding. This is a popular vehicle in the era of globalization and liberalization. Foreign companies often team up with the local companies to mutually share their strengths and resources to develop new products, markets, technologies or to create value through the joint undertaking.
Although India’s foreign direct investment (FDI) rules have been substantially liberalized since the country first allowed foreign investment in the early 1990s and most sectors are now open to 100% FDI, JVC remains a popular vehicle for foreign companies. While JVC brings several benefits, it also has the inherent potential to fail because of incompatibility of the participants, management gridlocks, inadequate research, failure to contribute, misinterpretation of roles etc. Therefore it is essential to choose the right partners and clearly spell out the roles, responsibilities and rights of each participant.
Automatic Approval: The Government has classified 37 high priority areas covering most of the industrial sectors, in which up to 74% foreign equity receive automatic approval. Foreign investment in unrestricted sectors or restricted sectors up to the extent permitted under automatic route does not require any prior approval either by Government of India or Reserve Bank of India (RBI). Besides the high priority areas automatic approval is also available for setting up international trading companies engaged primarily in export activities.
Foreign Investment Promotion Board (FIPB) Approval Route: In other special cases, not covered under the automatic route, a special approval of FIPB or the Secretariat of Industrial Approvals (“SIA”), depending upon the quantum of investment, is required. The companies having foreign investment approval through FIPB route do not require any further clearance from RBI for receiving inward remittance and issue of shares to the foreign investors.
Wholly Owned Subsidiary Company (WOS)
Foreign companies can also set up wholly-owned subsidiary in sectors where 100% foreign direct investment is permitted under the FDI policy. A WOS can be formed either as a private or public company, limited by shares or guarantee, or an unlimited liability company. Most often due to the unique advantages Private Limited Company is the most preferred form for a WOS. This structure gives the most flexibility and protection to a foreign investor.
Liaison Office/ Representative Office in India
Foreign companies are allowed to establish Liaison Office in India after obtaining prior approval from the Reserve Bank of India (RBI), which is the apex bank India .The RBI grants approval, for one to three years, and it is renewable upon expiry. It is primarily a communication bridge between the foreign company and its customers or potential customers in India. The Liaison Office can also be setup to establish business contacts or gather market intelligence to promote the products or services of the parent company. It cannot engage in revenue generating activities.