Foreign Company Registration Overview
India has emerged as one of the fastest growing economies in the world and become an attractive destination for foreign investments. The country is blessed with rich resources and a large market base; also in the recent years due to change in the regulatory environment, foreign direct investment has got a direct boost, making it even easier for the foreign investors to start a business here. However, if a foreign national has to set up a company in India, he has to go through FDI policy of India to see for any restrictions or prohibitions in the proposed or desired business activity.
Before we start with the necessary procedures and requirements to set up a foreign company in India, it is important to understand the difference between the foreign company and Indian company, because at times people get confused in what is what. In simple words, a foreign company is one where a foreign national or a foreign company sets up its branch office in India whereas if a foreign national incorporates a company in India, then it is called as an Indian company. So, a foreign company is the one which is incorporated outside India but has its place of business in India. At present there are as many as approx 3800 foreign companies operating in India, where Delhi and Maharashtra has maximum number of such firms.
RBI Guidelines and Rules for Foreign Company Registration
As per Indian law, a foreign company has to follow rules and guidelines of the RBI and The Companies Act 2013 etc and as per Sec 2(42) of the Companies Act 2013, a foreign company is defined as:
A foreign company is a company or a body incorporated outside India and
For a foreign national or a foreign company to enter Indian market and set up its business operations here, there are two options to do so:
As A Wholly Owned Subsidiary Company
When a foreign national or a foreign company invests 100% FDI in an Indian company through an automatic route, then it becomes wholly owned subsidiary company of that particular foreign company i.e. its complete share capital lies in the hand of the foreign corporate body and the later can either be a private limited company by guarantee or shares or an unlimited liability company. In order to register the foreign company as a wholly owned subsidiary company, the corporate company has to submit following documents for its registration in India:
Register a Foreign Company as a Joint Venture
Another way to register a foreign company in India is by entering into a joint venture with an Indian partner. A joint venture is quite a flexible option and gives the option to involve either an entirely new entity or an existing business as well. However, depending on the route it is opting for, necessary approvals are required. For example, if there is an involvement of a foreign national or a NRI, it is required to take government approval either from the RBI or FIPB. Approval from the former is required if the joint venture is taking an automatic route, however in any other case, approval from FIPB is mandatory.
Setting Up A Liaison Office
In order to set up a liaison office in India, foreign entity can take either of the below mentioned routes, i.e.
In order to set up a liaison office in India, foreign parent company has to obtain certain permissions and approvals from the Reserve Bank of India (RBI), if:
Also, the foreign entity has to fulfill below mentioned criteria before qualifying for the establishment of a liaison office:
Setting Up A Branch Office of Foreign Company in India
The main idea behind setting up a branch office in India by a foreign entity is to carry out its branch activities for the business and thus it allows the foreign entity to test and explore the Indian market without making huge investments. India, has carved its place as an attractive destination for investors from all around the world and the foreign entities that are looking to establish their business in India have two options to choose from i.e. they can either start a full-fledged private limited company with up to 100% foreign direct investment (FDI) in most of the sectors or they can rather establish a branch office first and get a thorough understanding of the Indian market. For opening a branch office in India, its parent company has to comply or meet the below listed eligibility requirements as listed by the RBI:
Setting Up A Representative Office or Project Office
If the foreign company wants to set up an establishment office in India and has already secured a contract from an Indian company to execute its project in India, a prior permission of RBI is not required, if:
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