India is amongst the fastest growing economies in the world with a huge market comprising over 1.3 billion people. Because of the vast amount of opportunities available for investors, there has been a staggering increase in the amount of Foreign Direct Investment (FDI) into the country in recent years. There are many foreign businesses willing to establish their operations in India.
With FDI in India growing rapidly, company setup in India is a topic of huge interest to businesses around the world. So now, we are going to cover the processes and procedures of foreign company registration in India.
Foreign companies have to stringently follow the rules and guidelines laid down by the Companies Act, 2013, the Companies (Registration of Foreign Companies) Rules, 2014, RBI guidelines, and FEMA to setup a company in India.
As per section 2(42) of the Companies Act, 2013, a foreign company means any company or body corporate incorporated outside India.
(a) It has a place of business in India whether by itself or through an agent, physically or through electronic mode.
(b) It conducts any business activity in India in any other manner.
The procedure for foreign company registration varies according to the type of foreign company registration in India.
A minimum of two directors are needed to register a wholly-owned subsidiary, out of which one director must be a resident in India
Directors must apply for DIN (Director Identification Number) and DSC (Digital Signature Certificate)
The Memorandum of Association (MOA) and Article of Association (AOA) must be drafted
The shareholders must subscribe to the MOA
The company’s name must be reserved through Part-A of the SPICe+ form (company registration application)
The registration application must be filled (Part-B of the SPICe+ form) on the Ministry of Affairs (MCA) portal
Along with the SPICe+ form, the applicant must submit the required documents. The documents are:
Address proof of the company
Indian directors must submit their PAN card, address proof and identity proof
Foreign directors must submit their passport and address proof (driving license, utility bills or any government license certified by the Indian consular or consulate)
After submitting all the documents, the applicant must pay the fees and submit the registration application
The Registrar of Companies (ROC) will verify all the documents and SPICe+ form
When the ROC verifies the authenticity of the form, he/she will issue the Certificate of Incorporation and the PAN number
A bank account must be opened by the company
After the subscription of the company share, share capital documents must be submitted for FDI compliance
A joint venture is a contract/arrangement where two or more parties come together to run a business.
To establish a company in India through a joint venture, the foreign entity/national has to choose a local partner with whom they want to enter into a joint venture
The chosen foreign entity and the local partner should sign an MOU or a Letter of Intent
The MOU or a Letter of Intent should state the basis for the joint venture agreement
The foreign entity and the local partner must negotiate and discuss all the terms of the agreement rigorously
The joint venture agreement must be in accordance with regional and international laws
The agreement should address matters like dispute resolution agreements, holding shares, transfer of shares, confidentiality, board of directors non-compete, etc.
A foreign company can open a liaison office in India with the prior approval of RBI. The processes are:
The foreign company must have a profit-making record during the prior three financial years in the home country. Its net value should not be less than USD 50,000 to set up a liaison office.
The company should forward the application to establish a liaison office to the Foreign Exchange Department through a designated Authorised Dealer Category–I Bank (AD)
The company should file the English version of the certificate of incorporation/registration or MOA or AOA and its latest audited balance sheet attested by the Indian Embassy or Notary Public in the country of registration
A unique identification number will be provided by the RBI to liaison office
The foreign company has to acquire PAN from Income Tax Authorities when setting up the liaison office in India
All the expenses should be met entirely through inward remittances of foreign exchange from the Head office located outside India
If a foreign entity that is also a subsidiary of other company does not meet the above conditions, it can submit a Letter of Comfort from its parent company if it satisfies the above conditions
A foreign insurance company can establish a liaison office after getting approval from the IRDAI (Insurance Regulatory and Development Authority) and Department of Banking Regulation (DBR)
A liaison office can conduct activities such as:
Representing the parent company in India
Promoting export or import in India
Promoting financial or technical collaborations on the group or on behalf of parent company
Coordinating communications between the parent or group companies and Indian entities
But, it cannot undertake any business activity and earn any income in India.
A project office can be established in India by a foreign company when the following conditions are fulfilled:
A foreign company can establish a project office without prior permission from RBI only when it has acquired contract from an Indian company for executing a project in India
The project should be funded directly by inward remittance from abroad
The project should be funded by a bilateral or multilateral International Financing Agency
An appropriate authority has cleared the project
A company or Indian entity providing the contract has granted a term loan by an Indian bank or Public Financial Institution for the project
If the above conditions are not met, the foreign company must approach the RBI for approval to set up a project office.
A foreign company can open a branch office in India and perform business activities with the prior approval of RBI. The processes are:
The foreign company should be engaged in trading or manufacturing activities
The company should have a profit record during the last five financial years and a net worth of not less than USD 1, 00,000 in its home country
The foreign entity should forward the application to establish a liaison office to the Foreign Exchange Department through a designated Authorised Dealer Category–I Bank (AD)
The company should file the English version of the certificate of incorporation/registration or MOA or AOA and its latest audited balance sheet attested by the Indian Embassy or Notary Public in the country of registration
A unique identification number will be provided by RBI to the branch office
The foreign company has to obtain PAN from Income Tax Authorities while establishing the branch office
All the expenses should be met entirely through inward remittances of foreign exchange from the Head office located outside India
A specific approval is needed from the Reserve Bank of India (RBI) under FEMA 1999 and approval from the Insurance Regulatory and Development Authority (IRDA)
If a foreign company that is also a subsidiary of other company does not meet the above conditions, it can submit a Letter of Comfort from its parent company if it satisfies the above conditions.
A branch office can undertake activities such as:
Providing consultancy or professional services
Conducting research work in areas in which its parent company is engaged
Import and export of goods
Promoting financial or technical collaborations on behalf of the parent company
Representing the parent company in India and acting as a selling or buying agent in India
Developing software and providing IT services in India
Giving technical support for products supplied by the parent company
Foreign airline or shipping company
The company cannot undertake retail trading activities and manufacturing or processing activities in India, indirectly or directly.
India offers a large and dynamic market for companies to invest and grow their business. If you are interested in conducting business activities, you need to establish your company’s legal presence in India by going through all the procedures laid down by the Indian authorities.
