Setting up a business in India as a foreign company involves a structured process that adheres to the Companies Act, 2013 and the Foreign Exchange Management Act (FEMA), 1999, overseen by the Reserve Bank of India (RBI). The process typically starts with choosing the right business structure and culminates in a series of registrations and compliance filings.
Step 1: Choose Your Business Structure
The first and most critical decision is selecting the appropriate legal structure for your business. The choice depends on your business’s goals, the level of control you want, and the nature of your activities. The most common options are:
- Wholly Owned Subsidiary (WOS) or Joint Venture (JV): A Private Limited Company is the most preferred structure for foreign companies looking to establish a long-term presence. It’s a separate legal entity, offering limited liability to its shareholders. A WOS is a company where the foreign entity holds 100% of the shares, while a JV involves a partnership with an Indian entity. This structure provides the greatest operational flexibility.
- Liaison Office (LO): This is a representative office that can only act as a communication channel between the parent company and potential Indian clients. It cannot conduct any commercial or business activity and must be financially supported by the parent company. Prior approval from the RBI is mandatory.
- Branch Office (BO): A BO can carry out certain specified activities on behalf of the parent company, such as exporting and importing goods or providing professional services. Like an LO, it requires prior approval from the RBI and cannot engage in manufacturing or retail trading activities.
- Project Office (PO): A temporary setup for a specific project. It can only execute a project that has been sanctioned by an Indian company or for which a contract has been secured. RBI approval is generally required.
For most foreign companies planning a full-fledged business, a private limited company is the recommended route.
Step 2: Get Key Identifiers and Documents
Before you can file for company incorporation, the proposed directors need to obtain two essential items:
- Digital Signature Certificate (DSC): This is a mandatory digital key used to sign all online documents submitted to the Ministry of Corporate Affairs (MCA). Each director who will be signing the incorporation documents needs to have a valid DSC. Foreign nationals must get their identity and address proofs apostilled or notarized in their home country.
- Director Identification Number (DIN): A unique identification number issued by the MCA to a person who intends to be a director of a company. You can apply for a DIN either with the company incorporation form (SPICe+) or separately.
Step 3: Company Name Reservation
Next, you need to reserve a unique name for your company through the RUN (Reserve Unique Name) service on the MCA portal. The proposed name should not be similar to any existing company or trademark in India. It’s advisable to have a few backup names ready, as the process can be quick but rejection is possible if the name is not unique.
Step 4: Incorporate the Company and Get Registrations
This is the main step where you formally incorporate the company. The entire process is now done through a single, integrated online form called SPICe+ (Simplified Proforma for Incorporating Company Electronically Plus).
- Documents for Filing: You’ll need to draft the Memorandum of Association (MoA) and the Articles of Association (AoA). The MoA defines the company’s objectives, while the AoA outlines the internal rules and regulations. Other required documents include a declaration from the directors and a proof of the registered office address in India.
- Integrated Filings: The SPICe+ form is comprehensive, allowing you to simultaneously apply for several key registrations:
- Company incorporation.
- Permanent Account Number (PAN): A unique 10-digit number for all tax-related purposes.
- Tax Deduction and Collection Account Number (TAN): A 10-digit alphanumeric number required for deducting or collecting tax at source.
- Employees’ Provident Fund Organisation (EPFO) and Employees’ State Insurance Corporation (ESIC) registration.
- Professional Tax registration (in certain states).
- Opening a company bank account.
After the successful submission and verification of the forms, the Registrar of Companies (ROC) will issue the Certificate of Incorporation, officially establishing your company as a legal entity.
Step 5: Post-Incorporation Compliance with RBI and Companies Act
This is where the RBI’s guidelines and the Companies Act, 2013, come into play with a focus on Foreign Direct Investment (FDI).
- FDI Route: Foreign investment in India can be made through two routes:
- Automatic Route: This is the most common route, where no prior approval from the government or the RBI is required. It’s available for most sectors, subject to specific sectoral caps and conditions. The company just needs to inform the RBI after the investment is made.
- Government Route: This route requires prior approval from the government for sectors with specific restrictions, such as multi-brand retail trading or defense.
- Inward Remittance and Reporting (FEMA Guidelines): Once your foreign capital comes in, you have a set timeline for reporting to the RBI.
- Within 30 days of receiving the funds, the company must report the inward remittance to the concerned Authorized Dealer (AD) Category-I bank.
- Within 30 days of issuing shares to the foreign investor, the company must file Form FC-GPR (Foreign Currency-Gross Provisional Return) with the RBI through the AD bank. This form details the investment and share allotment.
- Companies Act, 2013, Compliances: As a registered Indian company, you are subject to ongoing compliance requirements under the Companies Act, 2013, including:
- Appointing at least one director who is a resident of India.
- Maintaining proper books of accounts.
- Filing an annual return with the ROC in Form FC-4.
- Conducting annual audits.
- Exhibiting the company name and country of incorporation at its office and on all official publications.
By following these steps, a foreign company can successfully set up a business in India. Contact NIRA Associates for helping you navigate through the legal and regulatory landscape in India.
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