Registration of a Foreign Company in India
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 an entity incorporated outside India but doing business in India either by themselves or with the help of an agent, physically or by electronic mode.
A foreign national or a foreign company can enter Indian market and start its business operations by the following two ways:
How to Register a Foreign Company in India?
Register a Foreign Company as a Wholly Owned Subsidiary Company
When a foreign national or a foreign company make 100% investment in an Indian company through electronic route, the company is considered as the wholly owned subsidiary of that foreign company. The share capital of the owned subsidiary also came in the hands of the foreign company and later it can convert into a private limited company by shares or by guarantee or by unlimited liability.
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 in India
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 of a Foreign Company in India
In order to set up a liaison office in India, foreign entity can take either of the below mentioned routes, i.e.
- Automatic Route: In case the activities of the parent company falls under 100% FDI sectors, then the foreign entity does not need to obtain approval from the Indian government and a direct application to the RBI is to be submitted.
- Approval Route: If the activities of the foreign parent company do not fall under 100% FDI sectors, then the parent company has to obtain permission from the government. In this case, the applications are considered by the RBI in consultation with the Ministry of Finance, Government of India. Applications from entities such as non-government organizations or non-profit organizations or government bodies are also considered under this category.
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:
- The parent company is registered in Pakistan.
- The parent company is registered in Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau and the location of liaison office is in Jammu and Kashmir, North East region, Andaman and Nicobar Islands.
- If the parent company deals in sectors such as Defence, Telecom, Private Security and Information & Broadcasting.
- If the application is from a NGO.
Also, the foreign entity has to fulfill below mentioned criteria before qualifying for the establishment of a liaison office:
- It is mandatory for the parent office to have a 3 year record of profitable operations in its homeland;
- Its audited balance sheet must show the minimum net worth of US $50,000.
Setting Up a Branch Office of a 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:
- The branch office has to comply with both the Companies Act 1956 (2013) and also with the provisions of the Foreign Exchange Management Act 1999.
- The parent company has to submit the financial records for the last five years of the activity.
- The net worth of the parent company should not be less than USD 100,000.
Setting Up a Representative Office or Project Office of a Foreign Company in India
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:
- It has been cleared by an appropriate authority;
- It is funded directly from abroad or
- It is funded by a bilateral or multilateral international financing agency
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