As a result of the efforts, India’s ranking on the World Bank’s Doing Business Report (DBR) of 190 countries, has improved from 142nd position in 2014 to 63rd position in 2020. It has earned a place among the world’s top 10 improvers for the third year in a row. The ease of doing business in India has improved exponentially over the past few years.
The setting up business in India or starting a business in India requires diverse process and procedures, which should be adhered to so your business can run with ease and result in maximum profits with smooth compliances.
Below are the 7 steps guidelines which every entrepreneur should consider before the setting up business in India:-
1. Factors should consider before setting up Business in India
2. Whether the proposed business falls under Automatic Route or approval route
3. Process of choosing of which types Business establishment is suits best for your business
4. Business Registration Process and commencement of Business along with the costing of the same
5. Requisite Approvals and Registration
6. Mandatory Compliance under different Act.
7. Winding up of Business
Accordingly, in this article, we shall study about the important legal factors that should be kept in mind for starting the business in India.
1. PROHIBITED BUSINESS IN INDIA (ONLY FOR FDI PURPOSE)
The following sectors falls under prohibited business for FDI purpose in India:
- Lottery Business including Government/private lottery, online lotteries;
- Gambling and Betting including casino;
- Chit Funds;
- Nidhi Company;
- Trading in Transferable Development Rights (TDR);
- Manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitute;
- Real Estate Business or Construction of farm houses*;
- Sectors not open to private sector investment i.e., atomic energy, railway operations (other than permitted activities mentioned under the Consolidated FDI policy).
*Note that the “Real Estate Business does not include development of townships, construction of residential/commercial premises, roads or bridges”.
Now, once having clarity on allowed and prohibited businesses in India, let’s further re-classify the same under Automatic Route and Government approval Route.
AUTOMATIC ROUTE
Under the Automatic Route, the non-resident investor or the Indian company does not require any approval from Government of India for the investment.
GOVERNMENT ROUTE
Under the Government Route, prior to investment, approval from the Government of India is required. Proposals for foreign direct investment under Government route, are considered by respective Administrative Ministry/ Department and then only investment under the same is allowed. The same is applicable not only to some businesses but on investments from some countries like China, Pakistan, etc. as well.
However, it is to be noted that the word investment falls under the category of automatic or approval route but loans in the form of external commercials borrowings (ECBs) are allowed in any sector and there is no bifurcation of automatic and government approval as such except that the prescribed compliances for ECB are required to be done.
2. PROCESS OF CHOOSING OF FORM OF BUSINESS ESTABLISHMENT
The process of choosing the form of business is very important factor that should be done in accordance with the types of business, number of investors, duration of business in India, etc.
In case, the client wants to continue with the business form of foreign Company only, then the following options are available:
- LIAISON OFFICE –
Basic Purpose: To represent the parent company in India and basically act as a communication channel between the parent foreign Company and Indian entities.
Eligibility Criteria: The Foreign Entities should have a profit-making track record during the immediately preceding three financial years in the home country and net worth of not less than $ 50,000 or its equivalent.
- BRANCH OFFICE –
Basic Purpose: To undertake activities such as Export, Import, research, consultancy, etc.
Eligibility Criteria: The Foreign Entities should have a profit-making track record during the immediately preceding five financial years in the home country and net worth of not less than $ 100,000 or its equivalent.
- PROJECT OFFICE (PO)-
The Project Office can be set up to execute specific projects in India and cannot undertake or carry on any activity other than the activity relating and incidental to the execution of the project.
However, in case the client wants to run business in India in the form of an Indian Company, which is recommendable as well in case of long and standing business plans, the following options are available:
- Joint Venture with Indian Partner,
- Indian Company, whether subsidiary or not; and
- Limited Liability Partnership
Once the entity is formed, the details about the foreign investment needs to be informed to the Reserve Bank of India in prescribed formats and in a defined way.
3. OTHER APPROVALS AND REGISTRATION
- Trademark/ Brand Registration
Trademark registration provides legal right of exclusivity for the use of mark to the owner of the mark and it is always very important to take trademark registration well in advance before the product/service comes into market.
- GST Registration
Any business whose turnover exceeds the threshold limit, as may be prescribed, will have to get itself registered under GST.
- Importer Exporter Code (IEC)
Import Export (IE) Code is a registration required for persons importing or exporting goods and services from India. IE Code is issued by the Directorate General of Foreign Trade (DGFT), Ministry of Commerce and Industries, Government of India.
- MSME Registration
SME registration is not yet mandatory but there are a lot of merits of MSME registration and hence, the same is recommendable.
- EPF and ESI Registration
- Professional Tax Registration
- Copyright, Patent, Design and other registrations relating to Intellectual Property Rights
- Any business needs other different approvals and license as well in accordance with their business design and objective such as – Factory Layout Plan Approval, Pollution Board Approval, Registration under Contract Labor Act 1970, Environment, Forest and Wildlife Clearance, Factory Registration, etc.
{The author i.e., Mrs. Kajal Goyal is a Company Secretary in Practice at M/s. Kajal Goyal and Associates and can be reached at (M) +91-9999952595 and (E) [email protected]}
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