India is a fast-growing economy and presents tremendous opportunities for foreign business people. Yet, a foreigner must take the initiative to familiarize himself with the Indian business establishment legal process and acquire an Indian business license. This article will present a step-by-step guide for foreign investors who wish to set up and operate a company legally in India.
Selecting the Right Business Type
Before starting business in India, selecting an appropriate legal structure is crucial. The most favored ones among which foreign entrepreneurs can opt are:
Private Limited Company (PLC)
- Need a minimum of two directors and two shareholders (at least one Indian resident)
- Capable of availing 100% Foreign Direct Investment (FDI) in any sector under automatic route
- Subject to provisions of the Companies Act, 2013
Limited Liability Partnership (LLP)
- Must be a resident of India.
- Grants 100% FDI through automatic route in nearly all industries
- Fewer compliance requirements than a PLC
Branch Office (BO)
- Established by a foreign parent company for business activities like exports, consultancy, or research
- Requires approval of the Reserve Bank of India (RBI)
- May not undertake retailing or manufacturing activities
Liaison Office (LO)
- Is the representative office of the parent company
- May not generate revenue or conduct business activities
- Has to seek RBI sanction
Wholly Owned Subsidiary (WOS)
- 100% foreign-owned subsidiary firm
- Best suited for 100% FDI permitted sectors
All business structures have certain regulatory and legal compliances to be fulfilled before starting business in India.
Legal Proformas Required for Business Establishment in India
Having chosen the form of business structure, the following legal formalities are to be fulfilled:
1. Registration of Business Entity
- Apply for Digital Signature Certificate (DSC) of company directors
- Obtain Director Identification Number (DIN)
- Submit incorporation papers to the Ministry of Corporate Affairs (MCA)
- Receive a Certificate of Incorporation from the Registrar of Companies (ROC)
2. Registration of Business License in India
Based on the nature of business, certain licenses and permits may be necessary, like:
- Goods and Services Tax (GST) Registration – For firms with over INR 20 lakh turnover (INR 10 lakh for northeast states)
- Professional Tax Registration – Compulsory in certain states for employers
- Shops and Establishment License – Compulsory for companies with a physical presence
- Import Export Code (IEC) – Compulsory for companies dealing with foreign trade
- FSSAI License – Compulsory for food companies
- Sector-Specific Licenses – Certain industries (finance, healthcare, education) need extra licenses
3. Taxation and Compliance
- Obtain a Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN)
- File annual returns with the Income Tax Department and MCA
- Adhere to transfer pricing rules on cross-border transactions
- Keep proper books of accounts and be subject to mandatory audits (if applicable)
4. Opening a Corporate Bank Account
- Submit Certificate of Incorporation, PAN, and address proof to open a current account
- Foreign companies are required to adhere to Know Your Customer (KYC) norms
5. Foreign Direct Investment (FDI) Compliance
- 100% FDI permitted in all industries under the automatic route (no prior sanction required)
- Government sanction is necessary for some industries for foreign investment
- Transactions in FDI have to be reported to Reserve Bank of India (RBI) via Foreign Investment Facilitation Portal (FIFP)
Advantages of Doing Business in India as a Foreigner
- Massive Market: India has over 1.4 billion people, suggesting massive business opportunities.
- Lectures for FDI: The government of India encourages FDI freely by offering tax benefits and a hassle-free business policy.
- Low Cost of Operations: Labor and operational costs are much lower in India compared to most Western nations.
- Strong Startup Ecosystem: India boasts a strong startup ecosystem, with easy access to venture capital and government support to foster them.
Shared Issues Faced by Foreign Entrepreneurs
- Regulatory Challenges: Foreign investors may find India’s legal system and taxation difficult to deal with.
- Cultural Challenges: Local business practices and consumer culture must be understood.
- Visa and Work Permit Issues: Foreign investors may be required to obtain a Business Visa or Employment Visa for extended stay and business.
- Banking and Financial Transactions: RBI rules are to be followed under strict foreign exchange regulations.
What Quartis Consulting LLP Can Do For You
Professional expertise is needed to set up a business in India as a foreigner. One of the top consulting firms in New Delhi, Quartis Consulting LLP, is a single-window solution for end-to-end business solutions for foreign investors. Their strengths include:
- Company Registration Support: Advice to foreign businessmen on the proper business structure and simplifying registration.
- Regulatory Compliance Assistance: Maintaining compliance with Indian company regulations and FDI regulations.
- Tax and Accounting Services: Management of GST registration, filing of tax returns, and finance compliance.
- Business Licensing Advice: Facilitating ease of obtaining the required licenses and permits for various industries.
- On-going Business Solutions: Offering HR, payroll, and compliance management services.
Conclusion
India offers immense opportunities to business professionals from abroad, but victory is in the domain of lawfulness. It is important to know about the legal process of starting a business in India and acquiring the appropriate business license in India. Foreign investors can avail themselves of the services of a seasoned firm like Quartis Consulting LLP to tackle Indian business laws’ intricacies and establish their businesses with ease.
For further information on how Quartis Consulting LLP can help your company with registration and compliance, go to Quartis Consulting LLP.
