Setting up a Business

Last updated: April 22, 2021

Setting up a Business

Foreign investors have different avenues to set up business establishments in India. Here’s a window into the entry options, along with the procedures:

Entry options
A foreign company can set up business operations in two ways –

Entry options

A foreign company can set up business operations in two ways –

As a corporate, a company can function as –

1. A wholly-owned subsidiary

This can exist as a private company, subject to FDI guidelines. It has maximum flexibility for funding via equity, debt (foreign as well as local), and internal accruals. Indian transfer pricing regulations apply and repatriation of dividends is allowed without approvals. The company is required to be incorporated under the Companies Act, 1956. 

How to incorporate a company:

Incorporating a company through Simplified Proforma for Incorporating Company electronically (SPICe -INC-32), with eMoA (INC-33), eAOA (INC-34), is the default option and most companies are required to be incorporated through SPICe only.

Once incorporated, the company is subject to Indian laws and regulations as applicable to other domestic Indian companies. For more information, please refer to Registrar Of Companies, Steps To Register A New Company.

2. A Joint Venture

Laws governing domestic companies apply equally to joint ventures. The advantage for a JV is the established distribution/marketing set up belonging to an Indian partner. Financial resources and established contacts of the Indian partner/s help ease the process of setting up operations.  

Foreign companies can set up their operations in India as:

  1. Liaison office/Representative office

Can be the liaison office or representative of a parent Indian company promoting import/export; promoting technical and financial collaborations on behalf of the parent company; and/or coordinating communications between parent group companies.

What the Liaison Office cannot do:

  • 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
  1. Branch office

Can manage import and export of goods; provide professional or consultancy services; carry out research in areas that the parent company is engaged in; promote technical and financial collaborations on behalf of parent company; represent parent group companies in India; act as buying and selling agent in India; provide IT services and development of software in India along with technical support for products supplied by parent company. Branch offices can be set up in Special Economic Zones without approval from RBI.

What Branch Office cannot do:

  • A branch office is not allowed to carry out manufacturing activities on its own but is permitted to subcontract these to an Indian manufacturer
  • Retail trading activities of any nature is not allowed for a Branch office in India
  • Profits earned by the Branch offices can be freely remitted from India, subject to payment of applicable taxes.
  1. Project office

The Reserve Bank has granted general permission to foreign companies to establish project offices in India, provided they secure a contract from an Indian company to execute a project in India, and the project is funded directly by inward remittance from abroad; or funded by a bilateral or multilateral International Financing Agency; or if the project has been cleared by an appropriate authority; or a company or entity in India awarding the contract has been granted term loan by a Public Financial Institution or a bank in India for the project. However, if the above criteria are not met, the foreign entity has to approach the Reserve Bank of India, Central office, for approval. Setting up of project offices by foreign Non-Government Organisations/Non-Profit Organisations/Foreign Government Bodies/Departments must be through the Government Route. Accordingly, such entities are required to apply to the Reserve Bank for prior permission to establish an office in India, whether Project Office or otherwise  

Here onwards common to Corporate and Non-Corporate companies, therefore, should be a new section

Documentation required to register a company:

Except for defence, telecom, private security, information and broadcasting, and non-government organisation sectors, which require RBI approval, approval for registering other companies can be issued by designated Authorised Dealers Category-I Banks. 

The RBI lists 106 Authorised Dealer Category-I Banks, including IDFC Bank, Bandhan Bank, Doha Bank, Credit Suisse AG, Union Bank of India, State Bank of India, Punjab National Bank, Barclays Bank Plc and Abu Dhabi Commercial Bank, among others

Approval is given for three years to be renewed thereafter.

A company awarded a contract for a project by a government authority/PSU (Public Sector Unit) would automatically be given the approval to open a bank account.

The establishment of such offices in India by foreign entities is regulated under the Foreign Exchange Management Act.

Funding options:

The Reserve Bank of India issues guidelines for Loans, Advances, External Commercial Borrowings, Trade Credit, Borrowing and Lending in Foreign Currency by Authorised Dealers and Persons. For more information see Master Circular- Loans and Advances – Statutory and Other Restrictions and Master Direction – External Commercial Borrowings, Trade Credit, Borrowing and Lending in Foreign Currency  

What you need to set up Project, Liaison and Branch offices in India

Please go to this link for more information RBI – Master Circular on Establishment of Liaison / Branch /Project Offices in India by Foreign Entities For further information see Entry Strategies For Foreign Investors

Steps to register a new company in India

  • For details on Classification and Registration of Companies, please refer here
  • Incorporating a company through Simplified Proforma for Incorporating Company Electronically (SPICe -INC-32), with eMoA (INC-33), eAOA (INC-34), is the default option and most companies are required to be incorporated through SPICe only
  • Incorporation through SPICe (For details, SPICe FAQs on the home page may be referred)
  • Stakeholders can avail of 5 different services (Name Reservation, Allotment of Director Identification number (DIN), Incorporation of New Company, Allotment of PAN and Allotment of TAN) in one form by applying for Incorporation of a new company through SPICe form (INC-32) – Simplified Proforma for Incorporating Company electronically (SPICe) – with eMoA (INC-33), eAOA (INC-34). In case of eMoA, eAoA is not applicable, users are required to attach the pdf attachments of MoA and AoA. There is no need for reserving a name separately before filing SPICe. One name for the proposed company can be applied for in SPICe (INC-32).
  • A Section 8 company (Companies with Charitable Objects) can also be incorporated using SPICe form but after reserving a name using INC-1.
  • Incorporation through INC-7 in exceptional cases (For details, SPICe FAQs on home page may be referred)
  • Apply for the name of a company to be registered by first filing Form INC-1.

More – FAQs On SPICe Forms

How a foreign company can establish a place of business in India

Any foreign company can establish its place of business in India by filing eForm FC-1 (Information to be filed by a foreign company). The eForm needs to be digitally signed by an authorised representative of the foreign company. There is no need to apply and obtain DIN for Directors of a foreign company. However, it is mandatory to register the DSC of the authorised representative of the foreign company via associate DSC service available at the MCA portal.  

Mergers with Foreign Companies

A forward-looking law on mergers and amalgamations recognises that an Indian company ought to be permitted to merge with a foreign company. Both contract-based mergers between an Indian company and a foreign company and court-based mergers between such entities where the foreign company is the transferee need to be recognised according to the Indian Law. More – Mergers and Acquisitions

Listing on the Bombay Stock Exchange (BSE)

The BSE Ltd has a dedicated Listing Department to grant approval for listing of securities of companies in accordance with the provisions of the Securities Contracts (Regulation) Act, 1956, Securities Contracts (Regulation) Rules, 1957, Companies Act, 1956, guidelines issued by SEBI and Rules, Bye-laws and Regulations of BSE. BSE has set various guidelines and forms that need to be adhered to and submitted by the companies. These guidelines will help companies to expedite the fulfillment of the various formalities and disclosure requirements that are required at various stages of

  1. Public Issues
  2. Initial Public Offering
  3. Further Public Offering
  4. Preferential Issues
  5. Indian Depository Receipts
  6. Amalgamation
  7. Qualified Institutions Placements

A company intending to have its securities listed on BSE has to comply with the listing requirements prescribed by it. For full list of requirements see Bombay Stock Exchange  

Listing on National Stock Exchange

An applicant who desires listing of its securities with NSE must fulfill certain prerequisites. NSE staff welcomes the opportunity to discuss a company’s eligibility to list before a formal application is made. On fulfillment of the eligibility criteria, the company is required to fill in the listing application form. For more information, see the National Stock Exchange  

Indian Depository Receipts (for foreign firms that want to issue)

A foreign company can access the Indian securities market to raise funds through the issue of Indian Depository Receipts (IDRs). An IDR is an instrument denominated in Indian Rupees in the form of a depository receipt created by a Domestic Depository (custodian of securities registered with the Securities and Exchange Board of India) against the underlying equity of issuing company to enable foreign companies to raise funds from the Indian securities Markets. To know more about Indian Depository Receipts, see National Stock Exchange  

Registering a Trademark and Domain Name

Companies entering India will want to protect their rights and prevent others from using their name by registering a trademark and domain name. For the New Policy for .IN Internet Domain Name Registration & National Internet Exchange see Ministry Of Communications And Information Technology For more information on Indian Intellectual Property (IP) Laws see Controller General of Patents, Designs, and Trademarks