Entry strategy & Business set up
The Foreign Exchange Management Act, 1999 allows foreign entities to set up business operations in India. The entry strategy may be decided upon, depending on the nature of operations that are intended to be carried on in India. A foreign entity may thus set up business in India, either in the form of :
We assist foreign entities set-up business in India by providing advisory services on entry strategies and also managing the setting up of the business entity in India, all through to bring the entity to the stage where business operations may be commenced.
Foreign companies can open a liaison office in India to facilitate and promote the parent company’s business activities, and act as a communications channel between the foreign parent company and Indian companies. Unable to engage in commercial, trading, or industrial activities, liaison offices must be sustained by private, inward remittances received from their foreign parent company.
A liaison office is permitted to engage in the following activities:
The Foreign Exchange Management Act (FEMA) governs the application and approval process for the establishment of a liaison or branch office in India. Under the Act, foreign enterprises must receive specific approval from the Reserve Bank of India’s (RBI) Foreign Exchange Department to operate a liaison office in the country.
Foreign insurance companies can establish LOs in India only after obtaining approval from the Insurance Regulatory and Development Authority (IRDA). Foreign banks can establish LOs only after obtaining approval from the Department of Banking Regulation (DBR), RBI.
Branch Office in Special Economic Zones (SEZs)
Branches of Foreign Banks
Foreign banks do not require separate approval under FEMA, for opening branch office in India. Such banks are, however, required to obtain necessary approval under the provisions of the Banking Regulation Act, 1949, from Department of Banking Regulation, Reserve Bank.
Reserve Bank has granted general permission to foreign companies to establish Project Offices in India, provided they have secured a contract from an Indian company to execute a project in India, and
However, if the above criteria are not met, the foreign entity has to approach the Reserve Bank of India, Central Office, for approval.
Setting up of Project Offices by foreign Non-Government Organisations/Non-Profit Organisations/Foreign Government Bodies/Departments, by whatever name called, are under the Government Route. Accordingly, such entities are required to apply to the Reserve Bank for prior permission to establish an office in India, whether Project Office or otherwise. [as amended vide AP (DIR) No.31 dated September 17, 2012]
Banks can open non-interest bearing Foreign Currency Account for Project Offices in India subject to the following:
Bank can permit intermittent remittances by Project Offices pending winding up / completion of the project provided they are satisfied with the bonafides of the transaction, subject to the following:
Inter-Project transfer of funds requires prior permission of the Regional Office concerned of the Reserve Bank under whose jurisdiction the Project Office is situated.
When foreign company makes 100% FDI (Foreign Direct Investment) in India through an automatic route, the Indian company becomes the Wholly Owned Subsidiary of that Foreign Company. This is only possible where 100% FDI (Foreign Direct Investment) is permitted and no prior approval is required from the Reserve Bank of India. Generally, wholly owned subsidiary is formed through incorporation of a private limited company. Such private company is governed by Companies Act 2013.
Obtain Director Identification Number of 2 directors: All promoter directors of a company are required to obtain an identification number called the Director Identification Number (DIN) prior to formation of a company. The DIN is issued by the Ministry of Corporate Affairs (MCA).
Obtain Digital Certificate of the 2 directors: The documents required for formation of a company are required to be filed on-line and DSC is a verification tool (equivalent to hand written signature) used for filing such documents with the ROC. DSC can be obtained for any one or more directors of the proposed company under whose name the documents are usually filed. DSC is of various classes and a Class II DSC is applicable for incorporation and for the process thereafter.
Check availability of name of the company: Every company needs to have a name and the person incorporating it shall select a few names in the order of preference. The name shall be in consonance with the subject and objects of the proposed company and shall not be similar to the name of any existing company. Certain guidelines (give a hyperlink for name availability guidelines) have been prescribed by the MCA for selection of the name of a company which needs to be considered before selecting a name.
Prepare documents for filing with Ministry of Corporate Affairs: The name approval received from the ROC is valid for a period of sixty (60) days (the validity of the same can be extended by another thirty (30) days by applying to the ROC), within which time period, the necessary documents for incorporation of a company should be filed with the concerned ROC.
Obtain the Certificate of Incorporation: On submission of above documents and payment of requisite fees, ROC officials verify all the documents and upon satisfaction ROC allots a Company Identity Number (CIN) to the proposed company. The Certificate of Incorporation is the conclusive evidence of the incorporation of a company.
Timeline required in totality will be 15-25 working days from the date of receipt of all the documents.
The two options available for establishing a joint venture are
In a contractual joint venture, a new jointly agreement to work together but there is no agreement to give birth to an entity owned by the parties who are working together. The two parties do not share ownership of the business entity but each of the two parties exercises some elements of control in the joint venture. A typical example of a contractual joint venture is a franchisee relationship. In such a relationship the key elements are:
Foreign companies often resort to contractual joint ventures when they do not wish to invest in the equity capital of a business in India even though they wish to exercise controls and want to decide the shape that the venture takes. For example, a foreign company may have a Technology Collaboration agreement with an Indian company whereby the foreign company controls all key aspects of running the business. In such a case the foreign company may like to retain the option of taking equity at a future date in the Indian company run by its technology. This will mean that though to begin with the venture is a contractual joint venture, the parties may convert it into an equity based joint venture at a later date.
An equity joint venture agreement is one in which a separate business entity, jointly owned by two or more parties, is formed in accordance with the agreement of the parties. The key operative factor in such case is joint ownership by two or more parties. The form of business entity may vary – company, partnership firm, trusts, limited liability partnership firms, venture capital funds etc. From the point of a foreign company, the most preferable form of business entity is either a company or a limited liability partnership firm. We shall discuss this aspect in detail in the next section. Generally speaking in an equity based joint venture, the profits and losses of the jointly owned entity are distributed among the parties according to the ratio of the capital contributions made by them. However, the division of profits and losses is not the only characteristic of an equity-based joint venture.
The key characteristics of equity-based joint ventures are as following:
It is not necessary that all the above five characteristics are fulfilled in every equitybased joint venture. For example, there are often agreements where one of the parties is investing but has no say in the management of the joint venture (JV)
Forms of Equity Based JV Every equity based joint venture gives birth to a new entity. Government of India permits certain type of entities and frowns upon some others. Different types of entities and the government’s attitude to them are summed up below:
Post Incorporation Registrations
Post the incorporation of a business entity in India, compliance’s under several laws and regulations prevailing in the country are to be met. This places the onus of responsibility on the business entity to comply with such laws. We render end to end services in this regard. Such services consist of the following:
FDI Advisory Services
Foreign Direct Investment’ (FDI) is the investment through capital instruments by a person resident outside Indian
FDI in India can be made under two routes –
RBI & FIPB Compliance Management
As per the Foreign Exchange Management Act, 1999 foreign entities that have set up businesses in India are to file certain documents with the RBI periodically. We provide advisory as well as compliance management services in this regard.
Secondly, where the foreign direct investment is made through the approval route, certain documents are to be furnished to the Foreign Investment Promotion Board periodically. We assist in meeting such compliances as well.
We have to file an Advance Reporting Form with the RBI within 30 days from the receipt of the share application money. The advance reporting form is available on the RBI website: http://ebiz.gov.in/app/login
The Form needs to be filled in manually on the website itself. The general basic details covered in the form are:
A report in Form FCGPR (Foreign Currency – General Purchase Register): This form needs to be filed with the RBI within 30 days from the date of allotment of shares. The Form needs to be filled in manually and is available at the RBI website: http://ebiz.gov.in/app/login
The details covered in the form are:
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