As a company entering other markets should be planned in advance and the entry strategies for different markets might differ.
This article will help you to make the entry strategies for the Indian market. A foreign company planning to set up business operations in India has the following options:
Entry as a Foreign Company
Foreign companies can set up their operations in India through
Liaison Office/Representative Office
Branch 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.
Entry as an Indian Company
A foreign company can commence operations in India by incorporating a company under the Companies Act, 1956 through
Joint Ventures
Wholly Owned Subsidiaries
Foreign equity in such Indian companies can be up to 100% depending on the requirements of the investor, subject to equity caps in respect of the area of activities under the Foreign Direct Investment (FDI) policy.
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
Representing the parent/ group companies in India.
To act as the channel of Communication between its Head Office and Parties in India.
Collecting and/ or providing business information.
Promoting export/ import from/ to India.
Promoting Technical/ financial collaborations between parent/ group companies and Indian companies. Liaison Office has advantages like easy operations, less formalities and simple closer procedure. Operations of a Liaison office are limited to collection of market information on behalf of the company and providing information about the company and its products to existing/ potential customers. The approval for establishing a liaison office in India is granted by the Reserve Bank of India (RBI). A Liaison office is required to register itself with the Registrar of Companies (ROC) and to comply with certain procedural formalities, as prescribed under the Companies Act 1956. Foreign Insurance Companies can establish liaison offices in India after obtaining necessary approval from the Insurance Regulatory and Development Authority of India.
Procedure
Procure RBI permission through Form FNC-1
Registration with Registrar of Companies (ROC), New Delhi and ROC, Mumbai
Procuring Digital Signature Certificate for the India representative of the Indian office.
Registration with Income Tax Department for obtaining Permanent Account Number (PAN) & Obtaining Tax deduction Number (TAN).
Registration with Import-Export Authority for theImport Export Code Number (IEC)
Documents needed
English version of the certificate of incorporation / registration attested by Indian Embassy
Latest balance sheet of the applicant company / firm.
Certified photo-copy of the agency Agreement, if any, with parties in India.
Photo-copy of the Agreement / draft- Agreement / correspondence indicating the terms of appointment of the proposed representative duly authenticated by the applicant.
B) Branch Office
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.
Rendering professional or consultancy services
Carrying out research work, in which the parent company is engaged.
Promoting technical or financial collaborations between Indian companies and parent or overseas group company.
Representing the parent company in India and acting as buying/selling agents in India.
Rendering services in Information Technology and development of software in India.
Rendering technical support to the products supplied by the parent/ group companies. A branch office is not allowed to carry out manufacturing activities on its own but is permitted to subcontract these to an Indian manufacturer. Advantages include easy operations, less formalities & simple Exit Procedure. 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).
Procedure
Foreign company has to make application to RBI through AD Category-1.
Registration with Registrar of Companies (ROC), New Delhi and ROC, Mumbai
Procuring Digital Signature Certificate for the India representative of the Indian office.
Registration with Income Tax Department for obtaining Permanent Account Number (PAN) & Obtaining Tax deduction Number (TAN)
Registration with Import-Export Authority for theImport Export Code Number (IEC) Permission to set up Branch Office is initially granted for a period of 3 years, which may be extended from time to time with RBI approval.
Documents Needed
Copy of the Certificate of Incorporation / Registration attested by the Notary Public in the country of registration
Latest Audited Balance sheet of the applicant company
Bankers’ Report from the applicant’s banker in the host country / country of registration showing the number of years the applicant has had banking relations with that bank.
C) Joint Venture With An Indian Partner
Foreign Companies can set up their operations in India by forging strategic alliances with Indian partners. It is essentially a medium to long-term contract which is specific and flexible. A joint venture can be organized as a partnership firm, a corporation or any other form of business organisation which the participating firms choose to select. It generally has the following characteristics:-
Contribution by partners of money, property, effort, knowledge, skill or other assets to the common undertaking.
Joint property interest in the subject matter of the venture.
Right of mutual control or management of the enterprise.
Right to share in the property.
Joint Venture may entail the following advantages for a foreign investor:
Established distribution/ marketing set up of the Indian partner
Available financial resource of the Indian partners
Established contacts of the Indian partners which help smoothen the process of setting up of operations
Procedure
The investors are only required to notify the Regional office concerned of RBI within 30 days of receipt of inward remittances and file the required documents with that office within 30 days of issue of shares to foreign investors. The proposals shall contain
Details of Whether the applicant has any existing financial or technical collaboration or trade mark agreement in India in the same field for which approval has been sought; and
If so, details thereof and the justification for proposing the new venture or technical collaboration; Applications can also be submitted with Indian Missions abroad who will forward them to the Department of Economic Affairs for further processing; Foreign investment proposals received in the Department of Economic Affairs are generally placed before the Foreign Investment Promotion Board (FIPB) within 15 days of receipt.
D) Wholly Owned Subsidiary Company
Foreign companies can also to set up wholly owned subsidiary in sectors where 100% foreign direct investment is permitted under the FDI policy. A company can be registered as a Private Limited Company or Public Limited Company. Private Company is a closely held Company and can frame its own rules and bye laws. Public Company is a Company, where public is interested and is heavily regulated in India. Further, if investment in a Company is being made by a Foreign National, then compliance with regulations prescribed by Reserve Bank of India (Bank) is necessary.
Fully owned subsidiary entails the following advantages:
Civil and criminal liability is always on the managing director of the foreign company. He has to attend india court in case of court proceedings.
Tax rate is 40% instead of 30%.
The tax authorities would ask for you global accounts and try to tax your global profits saying major work is being done from india.
Enjoy greater flexibility and operational freedom
Procedure
Holding Company in Foreign Country must pass a Board resolution for incorporation of Subsidiary in India. and to elect 2 directors. Discuss whether they want to have a pvt ltd or Public ltd sub company. Proceed with the registration process of subsidiary company. The total process is divided in two parts
Step 1 – Incorporation of a Private Company
Application of unique Director Identification Number (DIN) of the two directors. 1.Obtain a DIN (Director Identification Number) 2.Obtain a Digital Signature
Get ‘name availability’ from Registrar of Companies (ROC).
Decide on a premise for the proposed subsidiary and obtain NOC from the landlord
Once name is approved, memorandum and articles of association is submitted along with duty fees.
Ministry issues a certificate of registration of the Company once queries are answered.
Obtaining other registrations like local licenses, Income tax registrations,
Open a bank Account in the name of the Company.
Step 2 – Compliance with RBI guidelines at the time of investment in a Private Company
Register the company with the RBI with its guidelines.
Appoint an auditor each year at its AGM. An auditor must be qualified by virtue of the Institute of Chartered Accountants of India Act 1949 and completely independent of the company.
Documents required
Form No. 1 – declaration to be executed on a non-judicial stamp paper of INR 20 by one of the directors of the proposed company stating that all the requirements of the incorporation have been complied with.
Form No. 18 – This is a form to be filed for informing ROC the registered office of the proposed company.
Form No. 29 – Consent to act as directors
Form No. 32 – This is a form that states the names of the proposed directors.
Memorandum Articles of Association(MOA) and Articles of Association (AOA)
Name approval letter in original. Power of Attorney signed by all the subscribers of MOA authorising one of the subscribers or any other person like us to act on their behalf for the purpose of incorporation and accepting the certificate of incorporation.
Why Morulaa?
Benefits of company incorporation through us:
Company formation is a complex procedure and can take unnecessarily long if you do not take the help of experts. Morulaa helps you getting started by searching a property that meets all your requirements.
End to end service platform
Pre-incorporation consultancy
Incorporation services
Post incorporation services such as registrations under various statues of India
Limited liability for corporate directors;
A corporate bank account with an international retail or private bank;
Back Office Management such as accounting, & payroll
Minimisation of international tax liabilities;
Compliance Services – Audit and filing returns with various statutory authorities
Compliance related to RBI [Federal Bank India] Requirements
We assist you to establish:
Branch Office
Liaison Office
Project Office
Wholly Owned Subsidiary
Joint Venture with local Partners