Doing Business in India

NRI’s, Individuals who are not citizens of India, Persons of Indian origin, foreign companies can set up a company in India under the Companies Act, 2013, up to 100% in most of the sectors permitted and in some cases up to certain percentage as per the sectorial cap prescribed under the FEMA guidelines both under automatic route and approval route. FDI in some sectors is prohibited for foreign nationals or companies. Hence, foreign nationals or companies interested in doing business in India can do so by any of the following means:

Incorporation of a Wholly Owned Subsidiary (WOS / 100% Subsidiary) in India

Foreign companies that are interested in setting up their operations in India, do so by the way of a Wholly Owned Subsidiary. Those foreign companies if they are operating in sectors where 100% foreign direct investment is permitted under the FDI policy and the provisions of FEMA can set up their 100% subsidiary (Wholly Owned Subsidiary) in India.

To know more about Subsidiary Incorporation in India, click here.

Investment in a company registered under the companies act, 2013

Investments can be made in equity shares or mandatorily and fully convertible debentures and preference shares of an Indian company by non-residents. Subscription to other types of preference shares such as nonconvertible, optionally convertible or partially convertible debentures or equity shares can be done, which are governed under the guidelines applicable for both External Commercial Borrowings (ECBs) and FDI.

To know more about Company Incorporation in India, click here.

Investment in a LLP registered under the Limited Liability Partnership Act, 2008

A person resident outside India or an entity incorporated outside India can invest in LLPs. However, the following persons shall not be eligible to invest in LLPs, operating in sectors / activities where 100% FDI is allowed under the automatic route of FDI Scheme. An LLP engaged in the following sectors / activities shall not be eligible to accept FDI:

To know more about LLP registration in India, click here.

Investment in Partnership Firm / Proprietary Concern

A person resident outside India other than NRIs / PIO may make an application and seek prior approval of Reserve Bank, for making investment by way of contribution to the capital of a firm or a proprietorship concern or any association of persons in India. The application will be decided in consultation with the Government of India.

To know more about firm registration in India, click here.

Conditions to be fulfilled

A Non-Resident Indian (NRI) or a Person of Indian Origin (PIO) resident outside India can invest by way of contribution to the capital of a firm or a proprietary concern in India on repatriation basis provided:

  • Amount is invested by inward remittance or out of NRE / FCNR(B) / NRO (on non-repatriation bases) account maintained with Authorised Dealers / Authorised banks.
  • The firm or proprietary concern is not engaged in any agricultural / plantation or real estate business (i.e. dealing in land and immovable property with a view to earning profit or earning income there from) or print media sector.
  • Amount invested shall not be eligible for repatriation outside India.
  • NRIs / PIO may seek prior permission of Reserve Bank for investment in sole proprietorship concerns / partnership firms with repatriation benefits. The application will be decided in consultation with the Government of India.

Both FIIs and NRIs are not allowed to invest in any company which is engaged or proposes to engage in the following activities:

  • Business of chit fund, or
  • Nidhi company, or
  • Agricultural or plantation activities, or
  • Real estate business or construction of farm houses, or
  • Trading in Transferable Development Rights (TDRs).

Payment for such shares /convertible debentures can be made by way of:

  • inward remittance through normal banking channels.
  • debit to NRE / FCNR account of the person concerned.
  • conversion of royalty / lump sum / technical know how fee due for payment / import of capital goods by units in SEZ or conversion of ECB, can be treated as consideration for issue of shares.
  • conversion of import payables / pre incorporation expenses / share swap can be treated as consideration for issue of shares with the approval of FIPB.

To decide the best possible strategy to do business in India, the know the conditions to be met etc., write to us at [email protected]