India company setup
Many options are available for foreign investors who are interested in setting up a company in India, but the most popular option for foreign investors is the private limited company.
The company formation experts at New Horizons can offer in-depth knowledge and assistance with setting up your company in India. We can also offer advice and information about other types of entities you may want to consider.
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Benefits of setting up a company in India
India is a large country with robust culture and an educated workforce. It has the second largest population in the world and has the second largest economy in Asia, according to its GDP. Establishing and operating a business in India tends to be much less expensive than other countries, which usually translates to higher net profits for businesses.
Businesses can take advantage of low paid-up capital requirements and low average salary levels.
The Indian government also provides a number of attractive incentives to businesses, including complete exemption from corporate taxes, refunds on certain costs extended on the business, such as project investment, research and training, accelerated depreciation on equipment, reimbursements for operation costs and financial grants. Additionally, a number of free trade agreements with other major countries provides even greater incentives to set up a company in India.
Basic steps in setting up any business entity in India
The process to set up a business entity in India is generally the same, regardless of the specific entity structure you select. This process typically involves:
- Selecting a unique trading name for the company
- Completing an application for registration of the business name, to include between four and siz proposed trading names
- Selecting an appropriate business structure
- Registering with the Registrar of Companies
- Preparing employment contracts
- Registering for social security
- Obtaining a Director Identification Number and Digital Signature Certificate
Special considerations for completing the registration process
When selecting a trading name for a business in India, investors must ensure that their company name does not closely resemble that of other businesses that are already operating in India. They must also follow other strict guidelines, so working with a local expert from New Horizons may help avoid unnecessary delays during this process.
The trading name is selected by completing an online document called eForm1. This form is submitted to the Registrar of Companies. Multiple trading names can be proposed under the same application.
Investors must also submit their articles of association and memorandum of association, which must contain the company secretary’s signature.
There will be payments that are collected during the registration process, including the stamp duty. Once this process is complete and the company receives its certificate of incorporation, it can proceed with other steps to begin operating the business.
Types of business entities in India
There are a variety of entity structures that you can establish in India as a foreign investor. The best option for you will depend on the type of business you are establishing, the business activities that you plan to conduct at your Indian site, your initial investment, the type of liability protection you seek and the number of shareholders you have.
Some of the most common options for setting up a company in India are:
Private limited company
The private limited company is by far the most popular option for setting up a company in India. A minimum of two shareholders is necessary to establish this type of business. There is a maximum of 200 shareholders of the business. Shares for this type of business cannot be publicly traded. There must be between two and fifteen directors and there are specific residency requirements that pertain to the directors; one must be a citizen of India. The founders can be natural persons or legal entities that are domiciled in India or other countries. The directors and shareholders must register their person details in public records.
A minimum paid up capital of USD $1,650 is necessary to establish this type of business.
This entity structure provides great flexibility. The business can own real property in its own name, as well as other types of assets. It limits the liability of foreign investors and is often used for export activities, manufacturing, direct sales and software development companies. Businesses that choose this structure may be eligible for government incentives available for companies that invest in India.
Public limited company
A public limited company can offer shares directly to the public and can accept foreign direct investments.
To set up this type of entity, there must be at least seven shareholders and at least three directors. One director must be a resident of India. The business must hold statutory meetings and obtain government approval to appoint people to management positions. Shareholders can easily transfer their shares. Shareholders are only liable to the extent of their capital contributions.
Before beginning operations, the company must obtain a trading certificate and must publish a prospectus.
Minimum paid up share capital of USD $8,060 is required. The company is subject to an annual audit of its financial statements.
Most businesses that use this structure do so to be listed on the Indian Stock Exchange.
Limited liability partnership
Another way to set up a company in India is to establish a limited liability partnership. This type of entity is available for two or more partners. If the partnership is established by non-resident foreigners, they must appoint one resident manager in India.
This type of structure provides greater flexibility to the business owners since they can organize their business based upon their mutual agreement. Many service sector businesses use this type of entity. Partner liability is limited to their agreed contribution in their agreement and partners are not liable for the independent or unauthorized acts of other partners. This type of structure is also subject to minimized compliance regulations. The income of the business is directly taxed to the partners.
This business must submit annual financial statements to Indian tax authorities and these statements may be audited unless the business receives a minimum amount of income and has hardly any assets.
Free zone company
India has certain areas that provide additional incentives to certain types of businesses. Incentives often include valuable tax benefits. These typically extend to manufacturing and exporting businesses. Registration requirements in free zones, but some zones may require business owners to make larger investments of paid-up capital.
Foreign companies that have a business relationship with a company in India can also choose to set up a joint venture. There are not separate laws for joint ventures; they are subject to the same laws as those that govern domestic companies. Joint ventures can be set up as partnerships or incorporated subsidiaries.
Foreign companies that have a specific project they want to work on can set up a project office. A project office can be established to carry out a specific contract for a limited amount of time. Once the project is completed, the entity is terminated. Project offices are considered temporary business entities in India.
Profits can be remitted to business owners outside of India. Operations at the project office are taxed at the rate that applies to foreign companies like branch offices are.
This type of business is best for companies that want a simple way to enter the market and have only a limited-scope business.
Representative office or liaison office
A liaison office is only permitted to conduct certain types of business activities in India. It is a good way to test the market before making a substantial investment in India. Liaison offices promote exports and imports to and from India or promote technical and financial collaborations with other businesses in India. This entity may also be used to provide after-sales support to local resident customers. The office cannot participate in revenue generation activities.
There are no registered capital requirements associated with setting up this type of business. Because it is easy and less expensive to set up, it is a preferred method of establishing a business presence in India for companies that do not need to conduct income-generating activities in the country.
Foreign companies that are engaged in manufacturing and trading activities can set up a branch office. Branch offices can only complete activities as defined by the parent company. They cannot directly carry out manufacturing activities, but they can subcontract this work to a manufacturer in India.
These offices must be approved by the Reserve Bank of India. Branch offices incorporated in a Special Economic Zone are only permitted to conduct business activities within the zone.
Branch offices can remit profits to the parent company. However, they are subject to corporate tax, which may be up to 43%. Additionally, they may expose the parent company to a greater risk of liability, so this type of structure is only recommended in limited circumstances.
Typical functions of branch offices include:
- Facilitating the export or import of goods
- Rendering consulting or professional services to local clients
- Providing services in information technology and software development in India
- Providing technical support for products supplied by the parent company
- Signing local contracts
- Invoicing local customers
- Conducting research work in which the parent company is engaged
- Promoting collaborations between the parent company and Indian companies
- Representing the parent company in India
- Serving as the buying or selling agent in India
Contact New Horizons for setting up a company in India
The India company setup experts at New Horizons can help you determine the right investment and vehicle and strategy for setting up a business in India. While there are many bureaucratic requirements involved in this process, our experts can help you navigate this complex system and provide you with targeted advice based on your particular situation and objectives. We have the unique expertise and experience to help you seamlessly establish your business in India.
We also offer PEO and payroll services in India to help you while establishing your business. This allows you to launch your India operation faster while waiting for the registration of your separate entity in India. Contact our expert team of consultants for more advice on how to register your business in India and to learn which business entity is most suitable for your company.