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View PDFForeign investments in India are regulated by the rules and policies of the FDI, FEMA, RBI, and the Companies Act, 2013. To establish a business in India, a foreign entity has the following options:
As an Indian Company:
- Wholly Owned Subsidiary
- Joint Venture
- Limited Liability Partnership (LLP)
As a Foreign Company:
- Representative Office, Project Office, or Liaison Office
- Branch Office
As an Indian Company:
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Wholly Owned Subsidiary (WOS): A wholly owned subsidiary is a company in which a foreign entity invests 100% FDI in India through the automatic route. It can be established as either a private limited or public limited company. A WOS enjoys more flexibility in conducting business compared to a liaison or branch office. This is often considered the easiest and preferred route for foreign entities seeking to establish a business in India. It is governed by the Companies Act, 2013. Once incorporated, a WOS is treated as a domestic company and is eligible for the same exemptions, deductions, and benefits as any other Indian company.
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Joint Venture (JV): Foreign companies can set up operations in India by forming strategic alliances with Indian partners. A joint venture is ideal for sectors where 100% FDI is not allowed in India. This model allows foreign companies to leverage the resources, contacts, and distribution channels of Indian partners.
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Limited Liability Partnership (LLP): An LLP combines the advantages of a company (a separate legal entity with perpetual succession) with the flexibility of a partnership. LLPs now allow 100% FDI through the automatic route, making it easier for foreign entities to develop their business in India.
As a Foreign Company:
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Liaison Office: The Reserve Bank of India (RBI) approves the establishment of liaison offices in India. These offices serve as communication channels between the foreign company’s headquarters and its Indian counterparts. They are limited to promoting export/import, providing information about the parent company and its products, and facilitating technical/financial collaborations. Liaison offices are prohibited from engaging in any commercial activity in India and cannot generate income or earnings.
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Project Office: A project office is a temporary site office set up by a foreign company to execute a specific project in India. Project offices can only undertake activities related to the project for which they were established. Certain conditions prescribed by the RBI must be met for setting up a project office. A foreign company can establish a project office without RBI approval if it has secured a contract with an Indian company to execute a project, and the project is funded by inward remittance from abroad or a multilateral agency. If these conditions are not met, RBI approval is required. Once the project is completed, the project office can repatriate profits after settling taxes and fulfilling all other obligations.
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Branch Office: A branch office is an extension of a foreign company that engages in trading or manufacturing activities. It can export/import goods, render professional or consultancy services, conduct research in line with the parent company’s activities, and promote technical and financial collaborations. A branch office can be established with prior RBI approval and is subject to certain financial conditions. The foreign company must have a profit in the last five financial years and a net worth of at least USD 100,000 in its home country. If these criteria are not met, a Letter of Comfort from the parent company can be submitted. A branch office cannot expand its operations beyond the approved scope.
From the options available for foreign entities to establish a business in India, joint ventures, wholly owned subsidiaries, and LLPs are the most common methods for creating a new entity. In contrast, liaison offices, branch offices, and project offices are suitable for established foreign brands seeking to enter the Indian market.
However, setting up a liaison, branch, or project office requires approval from the RBI and/or government. As a result, the cost and time involved in registering these offices are higher compared to incorporating a private limited company. Additionally, foreign nationals cannot set up these offices independently; they must partner with an Indian entity, which further limits the scope for foreign nationals.
