Businesses can take advantage of a plethora of chances and expanded markets in India, which is one of the economies that is expanding at the quickest rate in the globe. Along with a politically stable environment, it possesses a vast pool of highly qualified workers, a broad customer base that numbers 1.4 billion people, and a large pool of consumers. The presence of this factor encourages foreign investors, particularly corporations, to establish their operations in India. It is possible for a foreign corporation to engage in business activity in India through a variety of different channels. For the purpose of this post, we will talk about the two primary methods that are used to register foreign companies in India. Furthermore, we will get an understanding of the definition of the term “foreign company” as well as the rules that govern it.
How can one define a foreign company?
Provisions pertaining to foreign firms and their registration in India can be found in the firms Act of 2013. According to Section 2 (42) of the Act, a foreign corporation is defined as a business or body corporate that is incorporated outside of India but has the following characteristics: It is able to conduct business in India, either through an agent or on its own, and it can do so in either a physical or virtual capacity. By any other means, it engages in commercial activities within the borders of India. Therefore, in the context of India, a foreign company is a corporation that is registered in another country but conducts business activities in India, either physically or virtually. This definition applies specifically to companies that are based in India.
Laws in India that apply to companies that are not Indian
First and foremost, the Ministry of Corporate Affairs (MCA) is in charge of regulating international businesses operating in India. corporations Act of 2013 has requirements that govern foreign corporations. These provisions can be found in sections 379-393A. Moreover, these firms are required to conform with the firms (Registration of Foreign Companies) Rules, 2014, which were established in 2014. In addition to this, if a foreign company has made an investment in the shares of an Indian company, which is known as Foreign Direct Investment (FDI), then the foreign company is required to adhere to the guidelines set forth by the Reserve Bank of India (RBI) and must comply with the Foreign Exchange Management Act, 1999, as well as the FDI policy and transfer pricing regulations, if they are applicable. Furthermore, if a foreign company has established a liaison office, branch office, or project office in India, then it is required to comply with the Foreign Exchange Management (Establishment in India of a branch or a liaison office or a project office or any other place of business) Regulations, 2016 as well as the Master Directions issued by the Reserve Bank of India. Furthermore, international corporations are required to comply with the same regulations regarding taxation, labour, intellectual property, and other areas (if applicable) as other companies that are registered in India.
Company Registration for Foreign Entities in India
The incorporation of foreign corporations takes place outside of India; yet, it is vital for these firms to be registered in India because they engage in economic activities there. There are two different ways that a foreign corporation can conduct its business activities in India, and they are as follows:
Making an Investment or Working Together with an Indian Company
In the following approaches, the foreign firm has the option of either investing in the shares of an Indian company or working together with the Indian company.
A subsidiary that is wholly owned
Within the framework of Foreign Direct Investment (FDI), the foreign firm has the opportunity to make an investment in the shares of an Indian company. When put another way, a foreign corporation has the ability to own one hundred percent of the share capital of a company that is registered in India and to conduct business activities through that company. When this occurs, the Indian firm is automatically elevated to the status of Wholly Owned Subsidiary (WOS) of the foreign corporation.
Procedures for Registration
In India, a private limited business has the ability to receive foreign direct investment (FDI) in its entirety through the automatic method, with the exception of a few areas. Consequently, the establishment of a private limited company makes it simple for a foreign corporation to engage in commercial activity. A private company must have a minimum of two shareholders and two directors, with at least one director being a resident of India. In addition, the firm must have a minimum of two stockholders. To register a corporation in India with the Ministry of Corporate Affairs (MCA), you will need to follow the steps that are outlined in the following paragraphs: The first step is to go to the MCA portal and submit Part A of the SPICE+ form, which is the company registration form. This will allow you to reserve the name of the prospective firm. The second step is to submit an application for a Digital Signature Certificate (DSC) for directors and shareholders. The digital signature of company registration paperwork is one of its primary functions. Step three involves drafting the Memorandum of Association (MOA) and Articles of Association (AOA) for the proposed company, as well as gathering the remaining documents, which are as follows:
- The proof of the company’s registered office can be a copy of the sale deed, utility bills (such as the telephone bill, the energy bill, and so on) that are no more than two months old, a rent agreement, or a letter of clearance from the property owner.
- Voter identification cards, Aadhaar cards, PAN cards, passports, and driving licences are all acceptable forms of identification for directors and shareholders. When it comes to directors or shareholders who are not from the country of origin, the passport is required.
- Utility invoices, such as energy bills, telephone bills, and other similar bills, that are no more than two months old or the most recent bank statement, are acceptable forms of proof of address for directors and shareholders.
Photos of directors and stockholders that are larger than passport size
In the fourth step, you will submit an application for the registration of the company by submitting Part B of the SPICE+ form, along with the connected forms and the papers that were stated earlier. Kindly make the necessary payments for the fees. As an additional option, you can use this form to submit an application for the Director Identification Number (DIN) of directors. During the fifth step, a Certificate of Incorporation will be issued to the company if the registration form is complete in all respects. This certificate will include the company’s CIN, PAN, TAN, and GSTIN (if it was applied for). It is important to note that accreditation from a practising CA/CS/CMA is required in order to register a company in India. With self-assurance, you should get started on your adventure as an entrepreneur! Get in touch with our professionals that will make the process of registering your company simple.
Joint Venture (JV)
A foreign corporation can also conduct its business activities in India by forming a joint venture with an Indian organisation. This is yet another method of doing business in India. An arrangement in which two or more parties work together to collaborate on a specific project and share the risks and rewards of the business is known as a joint venture. In order to conduct business in India, it is therefore possible for a foreign corporation to work together with an Indian organisation.
In this regard, the following considerations have to be taken into consideration:
There are a variety of legal business structures that can be utilised by the foreign company and the Indian organisation (the parties) in order to build their joint venture. These include private limited companies, public limited companies, partnerships, limited liability partnerships (LLP), and other similar structures. The joint venture is built on the foundation of the agreement that was reached between the parties. As a result, they ought to have a comprehensive conversation on all of the provisions of the joint venture agreement. It is important to take into consideration both the local legislation and the foreign laws while drafting the joint venture agreement. Either a Memorandum of Understanding (MOU) or a Letter of Intent ought to be signed by the parties involved.
The establishment of a workplace in India
It is also possible for a foreign corporation to establish its own offices in India in order to carry out business activities. Furthermore, in order for the foreign corporation to create such offices, they are required to seek prior approval from the Reserve Bank of India (RBI). There are a few different kinds of offices that a foreign firm might establish, and they are as follows.
Position of Liaison
The Head Office of a foreign firm and the entities in India can communicate with one another through a location of business known as a Liaison Office. This office serves as a channel of communication. It does not engage in any commercial activity, and the remittances that it receives from the Head Office are used to cover its expenses. In order to establish a liaison office in India, a foreign company must first acquire prior approval from the Reserve Bank of India (RBI) and it must also satisfy the conditions that are listed below.
The Criteria for Eligibility
It is necessary for a foreign corporation to fulfil the following requirements in order to establish a liaison office: Additionally, it must have a proven track record of producing a profit in the three fiscal years immediately preceding the current one in the nation of origin; and It is required to have a net worth or equivalent of at least 50,000 United States Dollars. On the other hand, if the foreign company in question is not financially stable and it is a subsidiary of another firm, then the parent company of the foreign company may submit a Letter of Comfort (LOC) if it satisfies the criteria that were presented earlier.
How to Obtain Approval from the Reserve Bank of India
The following is the procedure that a foreign corporation must go through in order to satisfy the requirements of the Reserve Bank of India (RBI) in order to establish a liaison office in India:
- It is required that a foreign corporation submit an application in the form of Form FNC to a bank that is designated as an Authorised Dealer (AD) Category One. In addition to the application, it is required to send the following papers, as well as the letter of credit (where applicable):
- In the country where the company is registered, a copy of the firm’s Certificate of Registration or Incorporation, Memorandum of Association (MOA), and Articles of Association (AOA) must be attested by a Notary Public.
- A balance sheet that has been audited for the corporation for the past five years.
- The number of years that the firm had a relationship with the bank is detailed in the report that was given by the banker of the foreign company in the country where the registered business was located.
- In the event that the Form FNC is not signed by the Head of the company, a Power of Attorney is granted to the person who signed the Form FNC.
- In the event that the application is received, the AD bank will perform the necessary due diligence and determine whether or not the foreign company satisfies the eligibility requirements. In the event that the foreign company meets the requirements for eligibility, the AD bank will send a copy of the Form FNC to the General Manager of the Reserve Bank of India (RBI) in order to obtain a Unique Identification Number (UIN).
- Following the allocation of the UIN by the Reserve Bank of India (RBI), the AD bank will send a letter of approval to the foreign company in order to open a liaison office in India.
- Additionally, the foreign firm is obligated to alert the AD bank to the date when the liaison office will be established in India. The AD bank will then contact the Reserve Bank of India. The approval, on the other hand, will be revoked if the liaison office is not established within a period of six months from the date of approval.
- In addition, the validity period of a liaison office is two years for enterprises active in the building and development sectors as well as for non-banking financial companies (NBFC). In some instances, the validity period is equivalent to three years.
Activities That Are Allowed
In India, a liaison office is allowed to engage in an assortment of activities, including the following:
- Representing the parent firm or group entities within India in the capacity of a representative.
- export and import activities to and from India, as well as providing support for these activities.
- Encourage the formation of technical and financial collaborations between the parent or group organisations and Indian businesses.
- Providing a communication route between the parent firm and Indian businesses in order to conduct business.
Office of the Branch
When used in the context of a company, the term “branch office” refers to a location that the company has designated as its branch office. The majority of the time, the responsibilities of the branch office are identical to those of the main firm.
The Criteria for Eligibility
It is necessary for a foreign corporation to fulfil the following requirements in order to establish a branch office: Additionally, it must have a proven track record of producing a profit in the five fiscal years immediately preceding the current one in the nation of origin; and In order to qualify, it must have a net value of at least 100,000 USD or its equivalent. On the other hand, if the foreign company in question is not financially stable and it is a subsidiary of another firm, then the parent company of the foreign company may submit a Letter of Comfort (LOC) if it satisfies the criteria that were presented earlier. How to Obtain Approval from the Reserve Bank of India As was discussed earlier, the procedure that must be followed in order to receive approval from the Reserve Bank of India (RBI) in order to establish a branch office in India is comparable to the procedure that must be followed in order to establish a liaison office. Not only that, but the Reserve Bank of India does not need to give its clearance for foreign corporations to establish branch offices in SEZs, which stands for Special Economic Zones, in order to engage in manufacturing and service operations.
Activities That Are Allowed,
The following activities are those that a branch office in India may carry out:
- Exporting and importing commodities is a business activity.
- The provision of professional or consulting services (with the exception of the practice of legal professions in any circumstance).
- Conducting research work that is in line with the interests of the parent company or organisation.
- Helping to facilitate cooperation between Indian enterprises and the parent or abroad group company, whether they be technological or financial in nature.
- Serving as a purchasing and selling agent within India while also acting as a representative of the parent corporation in India throughout this time.
- Provide services related to information technology and take part in activities related to software development in India.
- It is the responsibility of the parent or group companies to provide technical support for your products.
- Representing different airlines or cargo corporations from other countries.
Office for Projects
A Project Office is a facility of business that serves as a representative of the interests of a foreign company that is carrying out a project throughout India. A liaison office is not included in this arrangement. There is hence the possibility for a foreign corporation to establish its project office in India. Obtaining approval from the Reserve Bank of India (RBI) is not required in any circumstance if the foreign enterprise — obtains a contract from an Indian corporation to carry out a project within the domestic territory of India; that the project has been granted all of the essential clearances from regulatory authorities; and Remittances from abroad, a bilateral or multilateral international financing agency, or an Indian company that is awarding the contract and has obtained a term loan from a public financial institution or a bank in India for the same project are the sources of funding directly. All of these sources of funding are considered to be sources of funding. However, if the conditions listed above are not satisfied, the foreign company must acquire approval from the Reserve Bank of India (RBI) in order to establish a project office in India. This approval must be obtained by following the same procedure that is required for establishing a liaison office or a branch office. The length of time that a project office is operational is referred to as the project’s tenure. For the purpose of registration, documents that must be given by foreign companies In accordance with the rules of the businesses Act of 2013, all foreign businesses that establish a place of business in India are required to submit Form FC-1 to the Registrar of Companies (ROC) within thirty days of the creation of their business. In order to complete the registration process, a foreign firm is required to provide the ROC with the following papers in addition to the submitted form: A certified copy of the company’s memorandum and articles, charter, or statute, or any other document that describes the company’s constitution, is an essential document. The submission of a certified translation of the document into English is required in the event that the document is not written in English. A complete address of the company’s major office or registered office is provided here. The foreign company’s list of directors and secretaries includes information about each individual, such as their name, date of birth, residence, nationality, and other relevant information. The names and addresses of the individuals who are authorised to accept documents on behalf of the Company and who are residents of India. In India, the address of the foreign corporation that is considered to be its major place of business. Provide information regarding the opening and shutting of a place of business in India on an earlier occasion or occasions. A declaration that neither the directors of the foreign company nor its authorised representative have been convicted of any crime or disqualified from participating in the establishment and management of the company, regardless of whether the conviction or debarment occurred in India or elsewhere. In addition, the Form FC-1 must be accompanied by consent from the Reserve Bank of India (RBI) and any other relevant regulatory bodies, if applicable. Nevertheless, in the event that approval is not necessary, the authorised representative of the foreign company is obligated to provide a declaration concerning this matter. In addition, if the document(s) that are being presented for registration are altered in any way, the foreign firm is required to notify the Registrar of the change using Form FC-2 within thirty days of the alteration taking place.
