Foreign investors before investing in India are confused about where they could find the best legal advice on Indian laws. This not only includes advise on setting up business operations but also India entry strategies, modes and manner in which one can set up shop in India and in general regulations governing businesses in India.
BUSINESS REGULATIONS AND INDIA ENTRY STRATEGIES
Ever since India embarked on the path of liberalisation and economic reform a couple of decades ago, the Government of India (the “GOI”) has been keen to attract foreign capital and investment. To this end, the GOI has put in place a policy framework on foreign investment, which is transparent, predictable and easily comprehensible. Over the past several years, the policy and procedures regulating and governing the inflow of foreign investments into India have been progressively liberalized and simplified. The initiatives taken by the Government of India in this regard have resulted in significant inflows of foreign investment in almost all areas of the economy, except a select few, that continue to remain reserved for strategic reasons.
Foreign entities have the option to set-up their business operations in India either in the form of incorporated entities or unincorporated entities. A foreign company opting for the incorporation route for setting up its operations in India is required to incorporate a company in India through either joint venture collaboration (“JV company”), or wholly owned subsidiary (“WOS”).
A foreign company not opting to be incorporated in India, either by way of a JV Company of WOS is permitted to conduct its business operations through any of the following offices:
- liaison office;
- branch office; or
- project office.
Such offices can only undertake activities permitted to them under the regulations framed by Foreign Exchange Management Act, 1999 (“FEMA”) for such offices. These offices are further required to be in compliance with provisions of the Indian Companies Act, 1956 (the “Companies Act”) as applicable to them. The approvals for these offices are accorded by the Reserve Bank of India (“RBI”) on a case-to-case basis.
In addition to the above, foreign investors can set up wholly owned subsidiary companies in India in the form of private or public companies, subject to prescribed FDI guidelines. Further, foreign entities can set up a joint venture company with an Indian or foreign partner. In general, the following two types of companies are permitted to be set-up in India:
- Private Company: A private company in India is a company with (i) a minimum paid up capital of Indian Rupees (“Rs” or “INR”) 1,00,000 or higher; (ii) by its articles restricts the right to transfer its shares, (iii) limits the number of its members to fifty, (iii) prohibits invitation to the public to subscribe for any shares in or debentures of the company; and (iv) prohibits any invitation or acceptance of deposits from persons other than its members, directors or their relatives.
- Public Company: A public company on the other hand (listed or unlisted) is a company which is (i) not a private company; (ii) a company with a minimum paid up capital of Rs 5,00,000 or higher; and (iii) a private company, which is a subsidiary of a public company.
The Companies Act prescribes specific requirements for incorporation of a company depending on the type of entity established. Once incorporated, a company set up by the foreign entity is required to carry on business in India in accordance with Indian laws.
At Redalphi one could find the best law firms in India and therefore get the best legal advice on India laws. Readers of this post can log on to our site, upload case details and have law firms contact you for your legal needs. This article has been compiled for general information of the public and does not constitute professional guidance or legal opinion. Readers should obtain appropriate professional advice.