How to Form a Foreign Company in India: A Step-by-Step Guide

Introduction

India's dynamic economy and pro-business regulations make it a compelling choice for foreign companies looking to grow their operations in India. India's has advantage of big and young population which offers a vast market opportunity. The country's consistent economic growth, along with various government incentives for foreign investment, display a favorable climate for exploring businesses. Also various programs such as "Make in India" and "Startup India" add to the attraction of starting a business in India.

In this step-by-step guide we will walk you through the detailed process of company incorporation in India toensuring a smooth business setup.

What is a Foreign Company as per Indian law?

A foreign company, often known as an international or multinational firm, is a business entity that has operation outside of India in which it was established or incorporated.

These companies usually participate in cross-border (from one country to another) commercial activity or doing business in several countries. According to the Section 2(42) of the Companies Act, 2013 (‘Act’) a foreign company is defined as a company that is incorporated outside India, however

• Has a business in India, whether remote, physical, or through an agency or,
• Does any business activity in India.

If any of these condition are satisfied it will be treated as foreign company.

Various Business / Legal Structures for setting up Foreign Companies in India

Before going into the incorporation process in India, it is essential to understand the various types of business or legal structures available for foreign companies who are willing to setup operations in India. These include:

• Private Limited Company or Wholly Owned Subsidiary company - This is a most preferred legal struture for foreign companies looking to start an company in India. A Priate Limited Company operates as a separate legal entity, from its parent company, and is allowed to engage in various business activities. In this legal structure, the holding company i.e., Foreign Company retains 100% ownership of the subsidiary’s company shares in India.

• Joint Venture - To form a joint venture and run a business in India, a foreign company needs to choose a local / national partner in India to conduct business. The foreign entity and the local partner should first enter into the partnership by signing a Memorandum of Understanding (MOU) or Letter of Intent (LOI) which will sets out the terms of the joint venture agreement.

• Liaison Office (Representative office) - A liaison office, also referred to as a representative office, serves as an intermediary for exchange of information between an international company and Indian partners and customers. Its responsibilities are limited to conducting market research, advertising the goods and services of the parent company, and assisting with communication. It's important to note that a liaison office cannot make revenue or engage in commercial activity.

• Branch Office - Foreign companies can open branch offices in India to conduct specific activities only as approved by RBI. Branch offices can perform certain restricted activities only like marketing, liaison work etc. and it is mandatory to get approval from The Reserve Bank of India (RBI) to open a branch office in India.

• Project Office - Project Office as the name mentioned are opened for execution of the specific project only and are temporary in nature. Project Office also requires RBI permission.

The right business structure should be chosen based on a number of criteria, including long-term objectives, capital investment, and the type of business.

Step by Step Process for Foreign Company Registration in India

1. Pre-incorporation Requirements

A foreign company willing to register business in India must meet certain pre-incorporation as mentioned below:

• Identification of Company Name - It is important to select a unique and appropriate name for your entity in India. The identified name must follow all guidelines as established by the Ministry of Corporate Affairs (MCA). Also it is advisable to use the MCA site to check a name availability searchto avoid  

• Digital Signature Certificates (DSC) - The MCA requires mandatory Digital Signature Certificate (DSC) in order to accept electronic document submissions. DSCs must be availed by all the directors and authorized signatories from certifying authority approved by the government.

• Director Identification Number (DIN) - Every director of the company must have a unique Director Identification Number (DIN). DIN can be obtained by submitting Form DIR-3 and the necessary paperwork on the MCA portal.

• Articles of Association (AOA) and Memorandum of Association (MOA) - Memorandum of Association will state the company's objectives, operations, and association with shareholders. All the internal management policies of the company will be outlined in the AOA and will include matters like dividend distribution policy, meeting procedures, and procedure for director appointments.

2. Incorporation Process for Company in India

There are several steps for incorporating company in India for foreign entity, which include:

• Filing the SPIC-e+ Form: By combining multiple activities, including DIN allotment, name reservation, and incorporation, this integrated form streamlines the registration procedure.

• Submitting AOA and MOA: Together with the SPICe+ Form, MOA and AOA needs to be submitted to the Registrar of Companies (RoC).

• Registration Fees: The registration fees are determined by the company's authorized share capital should be paid to the Authority.

• Certificate of Incorporation: On Registration, the Certificate of Incorporation which certifies the company's official incorporation and CIN number will be issued by the RoC.

3. Post-incorporation Compliance

Post incorporation, the Indian Subsidiary of foreign company must comply with various regulatory requirements, including:

• Mandatory giling annual returns and financial statements
• Maintaining statutory registers as required by various laws
• Conducting regular board meetings and shareholder meetings as required by Companies Act.

4. Opening a Bank Account

Post Incorporation of Company it is mandatory to open an corporate bank account for running business operations. The process involves submitting the KYC documents like Certificate of Incorporation, PAN, and other relevant documents to the designated bank.

5. Obtaining Various Tax Registrations

Post incorporation of companies there are various location and national tax registration a company should apply to run the operations for including obtaining a Permanent Account Number (PAN), Tax Deduction and Collection Account Number (TAN), and Goods and Services Tax (GST) registration.

6. Employement Laws and Regulations

There are various state and national laws to safeguard the employees in India. It is important to understanding and comply with Indian employment laws while hiring and managing employees. This includes complying with labor laws, provident fund regulations, and employee benefits schemes.

7. Understanding FDI Policies

India's Foreign Direct Investment (FDI) policies are intended to attract in foreign capital whil ensuring compliance to local and national laws. It is critical that foreign companies understand the FDI restrictions and approval processes.

8. Intellectual Property Protection

This includes registering for patents, trademarks, and copyrights with the appropriate Indian authorities. It is important to protect your intellectual property rights to ensure that your business can defend your unique ideas, products, and services in future.

9. Business Licenses and Permits

In India there are various business license and permits which are important to be taken. These requirement of various licenses and permits depend on the type of business. These can include environmental approvals and licenses particular to a certain sector.

10. Navigating Indian Legal System

It is important to understand the Indian legal system and various due dates and how it affects foreign companies. This covers regulatory framework compliance, contract law, and dispute resolution procedures.

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FAQ

1. What are various types of companies foreign investors can set up in India?
There are 5 ways foreign company can setup company in India. They can incorporate Private Limited Company, Public Limited Company, Liaison Office, Branch Office, or Project Office in India.

2. How much time it take to start or incorporate a company in India?
Incorporation in India is fully digital and user friendly and will typically takes not more than 15-20 working days, however it will depend on the submission of documents and various additional approvals to be obtained.

3. Is it mandatory to have an Indian director for a foreign company?
Yes it is mandatory to have at least one India director who must be a resident of India.

4. Is there any minimum capital requirement for incorporating a company in India?
No there is no minimum capital requirement for incorporating a Private Limited Company in India.

5. Can a foreign company own 100% equity in an Indian company?
Yes a foreign companies can own 100% equity under the automatic route, however subject to FDI policies.

6. What are various ongoing compliance requirements for a foreign company in India?
There are various monthly ,quarterly and yearly compliances a business have to do in India. It includes filing of annual returns, maintaining statutory registers, conducting quarterly board meetings, and adhering to various other tax regulations.

Conclusion

In India, establishing a foreign company involves complying with a number of legal, regulatory, and administrative procedures. Foreign investors can make sure that their business setup in India goes smoothly and successfully by following our thorough recommendations. focusing on India's expanding market and dynamic business environment can result in significant business success.

It is strongly advised to get professional guidance from professionals knowledgeable about Indian rules and regulations in order to guarantee a seamless and successful market entry. Jorden & Sky Advisors has a wealth of experience assisting international businesses in being established in India. Our knowledge of business, finance, and legal issues allows us to offer useful advice at every stage of establishment. Foreign businesses can successfully negotiate the intricacies of Indian rules, maximize their market entry plan, and set themselves up for long-term success by working with Jordensky expert.