As India is developing country and that too one of the fastest developing country in world, it is normal that other countries wanted to invest in India. India is actually a hub doing business as the cost of production in India is low which ultimately increases the Demand curve of a product or service.
With each year passing the foreign entities are coming and doing business in India. Now the question arises how a foreign entity runs a business in India. Let me explain you the basic question related to this in simple question and answer way.
As per section 2(42) of the Companies Act, 2013, a foreign company means any company or body corporate incorporated outside India which:-
(a) has a place of business in India whether by itself or through an agent, physically or through electronic mode; and
(b) conducts any business activity in India in any other manner.
A foreign company which is desirous of entering and doing business in India can enter in any of below given ways:-
As an Indian Company:- A Indian Limited company is incorporated in India and the shares are held by foreigners in below given ways.
As an Foreign Company:- A foreign company get register under the Companies Act, 2013 to start business in any of below given ways:-
Starting a private limited company is the coolest and fastest way to set up in India. Foreign Direct Investment (FDI) of up to 100% into a public limited or private limited is permitted under the FDI policy.
Yes, as generally remittance of foreign currency is involved, the Reserve Bank of India regulates them through Foreign Direct Investment (FDI) policy, Foreign Exchange Management Act (FEMA), 1999 etc.
Registration or incorporation for any of ways of doing business in India by foreign company as stated in question no. 2 varies. The professionals are involved in this matter as there are various important aspects which are kept in mind while starting the business, who explain all the pros and cons of how to enter in India and which mode is more beneficial for different type of business.
Depending upon the way a foreign company start a business in India, the documentation also varies. However, lets have look on documents required in each of way of doing business as discussed in question no. 2.
Following documents are required for such foreign company registration in India:
1) Address proof of the office (In case of a rented property, the latest electricity bill)
2) For Indian citizen
PAN card mandatory
Photograph ID proof like Aadhar card.
3) For foreign national
Photograph ID Proof like any government license
Documents submitted must be certified by the Indian Consular or consulate.
In case of joint venture, well contract is drafted, hence the following points to be taken care of by parties involved: –
1) Dispute resolution agreements
2) Law Applicable
3) Holding shares
4) Transfer of shares
5) Board of Directors Non-Compete
6) Confidentiality, etc
RBI prescribes the criteria for setting up a Liaison office or Representative Office in India, which are as follows:
1) It is essential to have a profit making record in the immediately preceding 3 financial years in the home country, and the net value should be more than USD 50,000.
2) In case, the above condition is not satisfied by the subsidiary company, a letter of comfort is to be submitted by the parent company which satisfies the above condition.
3) Specific approval of RBI under FEMA 1999 and Insurance Regulatory and Development Authority (IRDA) is required.
4) A designated Authorised Dealer Category–I Bank needs to forward an application for establishing an office to the RBI.
5) The office will be given a Unique Identification Number by RBI.
6) Along with the Application, English version of the Certificate of Incorporation/Registration or MOA & AOA (attested by the Indian Embassy/Notary Public), required documents should also be filed.
7) Latest Audited Balance Sheet of the applicant entity should also be filed in the Country of Registration.
In case a foreign company wants to establishment office, and the foreign company has secured a contract from an Indian company to execute a project in India, prior permission from RBI is not needed, provided:
1) Funded directly by inward remittance from abroad or
2) Funded by a bilateral or multilateral International Financing Agency or
3) Cleared by an appropriate authority or
4) A company or entity in India provided that a contract has been granted Term Loan by a bank in India or a Public Financial Institution for the project.
Besides that, in case the above conditions are not met the foreign entity has to approach the RBI for the approval.
By opening a branch office, a Foreign company can conduct business activity in India with the prior approval of RBI, provided:
1) The company should be engaged in manufacturing or trading activities,
2) Profit in the immediately preceding five financial years is necessary,
3) The net worth of not less than USD 100,000 in its home country.
There are huge opportunities in India as a Foreign Company even in the E-commerce Sector where govt recently allow 100% FDI in the E-commerce Sector.
Depending upon your business entity set up, The Companies, Act, 2013 and its related rules, Foreign Direct Investment (FDI) policy, Foreign Exchange Management Act (FEMA), 1999 governs the Foreign company business in India.
Now this question again depends upon the business entity set up compliances also varies. Let us discuss them point wise.
Wholly Owned Company/ Subsidiary Company
Liaison Office/ Project Office/ Branch Office
Depending upon the non-Compliance and its related penal provision, penalty, fine or other fees are levied upon the foreign company.
A foreign company doing business in India can also close down its business alike an Indian company. However, its process is little varies.
A) A wholly owned company or subsidiary can go for winding up or striking of the name of the company from the register of companies as per the Companies Act, 2013 as well as Reserve Bank of India.
Liaison Office/ Project Office/ Branch Office are closed in two (2) steps file application of closure of Liaison Office with ROC in E-form FC-3 and then Filing application for closure of Liaison Office with RBI through designated AD Category – I bank and remittance of proceeds abroad and closure of bank account in India.
Once ROC closure has taken place, the application for winding up/closure of Liaison Office may be submitted along with the following documents with designated AD Category – I bank:
Designated AD Category-I bank may allow remittance of winding up proceeds in respect of offices of banks and insurance companies, after obtaining copies of permission of closure from the sectorial regulators (like IRDA etc.) along with the documents mentioned above.
The designated AD Category – I bank will report to the Reserve Bank (the Regional Office concerned for LOs), along with a declaration stating that all the necessary documents submitted by the LO have been scrutinized and found to be in order for closure of Liaison Office.
Disclaimer: – The above article is prepared keeping in mind all the important and basic question which cross’s a mind of foreign investor or professionals regarding Foreign company in India. Wherever possible. I have tried to state the specific provisions. Section, regulation under the Companies Act, 2013, Foreign Direct Investment (FDI) policy, Foreign Exchange Management Act (FEMA), 1999 etc. Under no circumstance, the author shall not liable for any direct, indirect, special or incidental damage resulting from, arising out of or in connection with the use of the information.
(The Author is Corporate Consultant and provides varied array of services including Start-ups mentor, Secretarial, Legal, Trademark, taxation, Audit, GST, Book keeping and other ancillary advisory service in Delhi, Chandigarh as well as The National Capital Region (NCR) and can be contacted through email id:- [email protected] and Contact Number: 91-8178515005)