Services

Entry strategy & Business set up


Incorporation Services

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 :

  • Liaison Office
  • Branch Office
  • Project Office
  • Wholly Owned Subsidiary
  • Joint Venture Company

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:

  • Facilitate communication between the overseas head company and parties in India to establish market opportunities
  • Promote imports/exports between countries
  • Establish financial and technical cooperation between overseas and Indian companies
  • Represent the overseas head company in India.

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.

Permissible Activities

  • Companies incorporated outside India and engaged in manufacturing or trading activities are allowed to set up Branch Offices in India with specific approval of the Reserve Bank. Such Branch Offices are permitted to represent the parent / group companies and undertake the following activities in India:
    • Export / Import of goods.
    • Rendering professional or consultancy services.
    • Carrying out research work, in areas in which the parent company is engaged.
    • Promoting technical or financial collaborations between Indian companies and parent or overseas group company.
    • Representing the parent company in India and acting as buying / selling agent in India.
    • Rendering services in information technology and development of software in India.
    • Rendering technical support to the products supplied by parent/group companies.
    • Foreign airline / shipping company.
    Normally, the Branch Office should be engaged in the activity in which the parent company is engaged.
  • Retail trading activities of any nature is not allowed for a Branch Office in India.
  • A Branch Office is not allowed to carry out manufacturing or processing activities in India, directly or indirectly.
  • Profits earned by the Branch Offices are freely remittable from India, subject to payment of applicable taxes.

Branch Office in Special Economic Zones (SEZs)

  • Reserve Bank has given general permission to foreign companies for establishing branch/unit in Special Economic Zones (SEZs) to undertake manufacturing and service activities. The general permission is subject to the following conditions:
    • such units are functioning in those sectors where 100 per cent FDI is permitted
    • such units comply with part XI of the Companies Act,1956 (Section 592 to 602)
    • such units function on a stand-alone basis.
  • In the event of winding-up of business and for remittance of winding-up proceeds, the branch shall approach an AD Category – I bank with the documents as mentioned under "Closure of Liaison / Branch Office" except the copy of the letter granting approval by the Reserve Bank.

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.

General Permission

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

  • the project is funded directly by inward remittance from abroad; or
  • the project is funded by a bilateral or multilateral International Financing Agency; or
  • the project has been cleared by an appropriate authority; or
  • a company or entity in India awarding the contract has been granted Term Loan by a Public Financial Institution or a bank in India for the project.

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]


Opening of Foreign Currency Account

Banks can open non-interest bearing Foreign Currency Account for Project Offices in India subject to the following:

  • The Project Office has been established in India, with the general / specific permission of Reserve Bank, having the requisite approval from the concerned Project Sanctioning Authority concerned.
  • The contract, under which the project has been sanctioned, specifically provides for payment in foreign currency.
  • Each Project Office can open two Foreign Currency Accounts, usually one denominated in USD and other in home currency, provided both are maintained with the same AD category–I bank.
  • The permissible debits to the account shall be payment of project related expenditure and credits shall be foreign currency receipts from the Project Sanctioning Authority, and remittances from parent/group company abroad or bilateral / multilateral international financing agency.
  • The responsibility of ensuring that only the approved debits and credits are allowed in the Foreign Currency Account shall rest solely with the branch concerned of the AD. Further, the Accounts shall be subject to 100 per cent scrutiny by the Concurrent Auditor of the respective AD banks.
  • The Foreign Currency accounts have to be closed at the completion of the Project.

Intermittent Remittances by Project Offices in India

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:

  • The Project Office submits an Auditors' / Chartered Accountants’ Certificate to the effect that sufficient provisions have been made to meet the liabilities in India including Income Tax, etc.
  • An undertaking from the Project Office that the remittance will not, in any way, affect the completion of the Project in India and that any shortfall of funds for meeting any liability in India will be met by inward remittance from abroad.

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.


Reporting requirements

  • All new entities setting up Project Offices shall submit a report containing information, as per format provided in Annex 3 within five working days of the PO becoming functional to the Director General of Police (DGP) of the state concerned in which PO has established its office; if there is more than one office of such a foreign entity, in such cases to each of the DGP concerned of the state where it has established office in India; [as amended vide AP(DIR) No.35 dated September 25, 2012]
  • The foreign company establishing a Project Ofice in India is to furnish report through the concerned AD branch, to the concerned Regional Office of Reserve Bank of India under whose jurisdiction the Project Office is set up, incorporating the following details.
    • Name and address of the Foreign Company,
    • Reference Number and date of letter awarding the contract referred to in clause (ii) of Regulation 5 of Notification No. FEMA 22/2000-RB dated May 3, 2000,
    • Particulars of the authority awarding the projects / contract,
    • The total amount of contract,
    • Address / e-mail address / telephone number / fax number of the Project Office,
    • Tenure of Project Office,
    • Brief details of the Project undertaken,
    • AD branch with whom the account has been opened and the foreign currency in which the account is opened,
    • An undertaking to the effect that the Project Office is eligible to avail of the General Permission under Regulation 5(ii) to RBI Notification No.22/2000 – RB dated May 3, 2000 read with Notification No. FEMA 95 dated July 2, 2003 showing the reason thereof.
    This Report shall be forwarded through the AD branch to the Regional Office concerned of the Reserve Bank of India within 2 months of establishment of the Project Office.
  • The Project Office shall also submit to the AD branch on an annual basis, a Certificate from a Chartered Accountant showing the Project Status and certifying that the accounts of the Project Office has been audited and the activities undertaken are in conformity with the General / Specific permission given by the Reserve Bank.

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.


Procedure to obtain incorporation of the wholly owned subsidiary


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

  • Contractual joint venture
  • Equity based joint venture


Contractual Joint Venture (CJV)


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:

  • Two or more parties have a common intention – of running a business venture
  • Each party brings some inputs
  • Both parties exercise some controls on the business venture
  • The relationship is not a transaction to transaction relationship but has a character of relatively longer duration.

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.


Equity Based Joint Venture (EJV)


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:

  • There is an agreement to either create a new entity or for one of the parties to join into ownership of an existing entity
  • Shared Ownership by the parties involved
  • Shared management of the jointly owned entity
  • Shared responsibilities regarding capital investment and other financing arrangements.
  • Shared profits and losses according to the Agreement.

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:

  • Company: A limited liability company is the most preferred structure for joint venture entities in India. Government also encourages investment being in the form of equity capital of a company incorporated in India. Companies in India are mainly of two types – private limited and public limited. After the coming into force of Companies Amendment Act, 2015 there is no minimum share capital prescribed either for private limited company or public limited company. Earlier, the minimum prescribed share capital for a private limited company used to be Rs. 100,000- and for a public limited company it used to be Rs. 500,000-. A private limited company must have at least two shareholders, while a public limited company must have seven shareholders. The only exception to this is a one-person company. The shareholders may be foreign citizens or foreign companies. Companies Act 2013 makes it mandatory that at least one director of every company is resident of India.
  • Partnership Firm: Such an entity is not permitted for joint ventures by foreign residents in India in most of the cases. Exceptions are made in case of Non Resident Indians or Persons of Indian Origin residing out of India. However, such exceptions are subject to various conditions. Generally speaking, a foreign company should not think of using partnership firm as a vehicle for a joint venture.
  • Limited Liability Partnership (LLP) Firm: LLP Firm structure is regulated in India by The Limited Liability Partnership Act, 2008. Foreign investment in LLP Firms was not permitted before November 2015. Government of India has now allowed foreign investments in LLP firms subject to certain restrictions. LLP Firms are partnership firms with limited liability of partners. An LLP Firm combines the convenience of a partnership firm with the limited liability feature earlier found only in a company. An LLP Firm needs minimum two partners. It also requires minimum two Designated Partners out of which at least one should be resident of India. The two partners can also be appointed as Designated Partners. There is no requirement of minimum capital contribution to incorporate an LLP Firm.
  • Venture Capital Fund: A duly registered Foreign Venture Capital Investor is allowed to contribute up to 100% in Indian Venture Capital Undertakings /Venture Capital Funds / other companies.
  • Trusts: A foreign company is not allowed to use Trust as a form of a joint venture entity in India.
  • Investment Vehicle: SEBI has introduced regulations for some funds like Real Estate Investments Trusts, Infrastructure Investment Funds, Alternative Investment Funds. Such funds are now permitted to receive foreign investment from a person resident outside India.


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:

  • Obtaining Trade License which is provided by local Municipal bodies
  • Obtaining registration under Shops and Establishment Act This is provided by state labour law department and laws very from state to state
  • Registration with Profession Tax: provided by state’s commercial tax department
  • Registration with various applicable labour laws like Provident Fund, Employees’ State Insurance, Income Tax department, employees profession tax
  • Maintenance of books of accounts
  • Preparation of MS reports
  • Preparing business plan and monitoring budget with actuals
  • Obtaining registration under the various statutes applicable
  • Maintenance of statutory records and registers
  • Generation of periodic reports and filing the same with the relevant authorities
  • Other compliance management services
  • Compliances under Companies Act 2013
The above registration could vary from one state to another. We do all the liaison work with various statutory bodies and do all the necessary statutory compliances

FDI Advisory Services


Foreign Direct Investment’ (FDI) is the investment through capital instruments by a person resident outside Indian

  • in an unlisted Indian company; or
  • in 10 percent or more of the post issue paid-up equity capital on a fully diluted basis of a listed Indian company.
    • If an existing investment by a person resident outside India in capital instruments of a listed Indian company falls to a level below 10 percent of the post issue paid-up equity capital on a fully diluted basis, the investment will continue to be treated as FDI.
    • Fully diluted basis means the total number of shares that would be outstanding if all possible sources of conversion are exercised.

FDI in India can be made under two routes –

  • Automatic Route; or
  • Approval route
Automatic route: By this route FDI is allowed without prior approval by Government or Reserve Bank of India.

Government route: Prior approval by government is needed via this route. The application needs to be made through Foreign Investment Facilitation Portal, which will facilitate single window clearance of FDI application under Approval Route. The application will be forwarded to the respective ministries which will act on the application as per the standard operating procedure. Foreign Investment Promotion Board (FIPB) which was the responsible agency to oversee this route was abolished on May 24, 2017. It held its last meeting on 17th April, which was the 245th meeting of the Board[7][9].On 24 May 2017, Foreign Investment Promotion Board was scrapped by the Union Government.Henceforth, the work relating to processing of applications for FDI and approval of the Government thereon under the extant FDI Policy and FEMA, shall now be handled by the concerned Ministries/Departments in consultation with the Department of Industrial Policy & Promotion(DIPP), Ministry of Commerce, which will also issue the Standard Operating Procedure (SOP) for processing of applications and decision of the Government under the extant FDI policy


Sectoral caps:


Prohibited Sectors

  • Lottery Business including Government/private lottery, online lotteries, etc.
  • Gambling and Betting including casinos etc.
  • Chit funds
  • Nidhi company
  • Trading in Transferable Development Rights (TDRs)
  • Real Estate Business or Construction of Farm Houses ‘Real estate business’ shall not include development of townships, construction of residential /commercial premises, roads or bridges and Real Estate Investment Trusts (REITs) registered and regulated under the SEBI (REITs) Regulations 2014.
  • Manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes
  • Activities/sectors not open to private sector investment e.g.(I) Atomic Energy and (II) Railway operations (other than permitted activities mentioned in para 5.2).
  • Foreign technology collaboration in any form including licensing for franchise, trademark, brand name, management contract is also prohibited for Lottery Business.
  • Foreign technology collaboration in any form including licensing for franchise, trademark, brand name, management contract is also prohibited for Lottery Business and Gambling and Betting activities.

Permitted Sectors

  • In the following sectors/activities, FDI up to the limit indicated against each sector/activity is allowed, subject to applicable laws/regulations; security and other conditionalities. In sectors/activities not listed below, FDI is permitted up to100% on the automatic route, subject to applicable laws/regulations; security and other conditionalities. Wherever there is a requirement of minimum capitalization, it shall include share premium received along with the face value of the share, only when it is received by the company upon issue of the shares to the non-resident investor. Amount paid by the transferee during post-issue transfer of shares beyond the issue price of the share, cannot be taken into account while calculating minimum capitalization requirement.
  • Sectoral cap i.e. the maximum amount which can be invested by foreign investors in an entity, unless provided otherwise, is composite and includes all types of foreign investments, direct and indirect, regardless of whether the said investments have been made under Schedule 1 (FDI), 2 (FII), 2A (FPI), 3 (NRI), 6 (FVCI), 9 (LLPs), 10 (DRs) and 11(Investment Vehicle) of FEMA (Transfer or Issue of Security by Persons Resident Outside India) Regulations. FCCBs and DRs having underlying of instruments which can be issued under Schedule 5, being in the nature of debt, shall not be treated as foreign


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.


RBI compliance requirement for Foreign Investments in India against share capital


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:

  • PAN of the Investee Company
  • Basic Details of the Investee Company (Company issuing the shares)
  • Basic Details of the Foreign Investor (Person investing the money)
  • Date of Receipt of Funds
  • Amount:
    • Amount received in Foreign Currency
    • Currency Type like USD, GBP etc
    • Exchange Rate for Conversion
    • Amount in Indian Rupees
  • Whether Investment is under Automatic Route or Approval Route
  • If it is automatic route (pre-approved by govt for all the users of some sectors), then click on automatic route and proceed
  • If it requires an approval from the RBI, then click on approval route and mention the date and reference number of the approval
  • Details of AD Bank: The name of the Bank in which the money has been received, the branch name also has to be mentioned
  • Address & Contact Details of the AD Bank
  • Attachments:
    • KYC – It will be shared by the Remitter bank as well as the AD Bank
    • Both KYC needs to be attached here
    • Foreign Inward Remittance Certificate (FIRC): This is a certificate that will be issued by the AD Bank and needs to be attached
    • Authorised Signature of the Investee Company
    • Details of AD Bank to whom the form is submitted – The form will be sent to the bank to confirm all the details and once the bank and RBI checks it, then the acknowledgment will be generated for your reference


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:

  • PAN of the Investee Company
  • Date of issue of shares
  • Basic details of the Investee Company
  • Description of the main business activity: This basically covers the description and the activities of the business that is given at the time of obtaining the registration from the RBI
  • Location of the project for which the investment has been made
  • Percentage(%) of FDI allowed as per FDI Policy
  • State whether it is allowed under Automatic or Approval Route
  • Details of Foreign Investor
  • Type of Security Issues:
  • Whether the nature of the security is Equity, Debentures, Others (Specify)
  • Number
  • Face Value
  • Premium
  • Issue Price/Share
  • Amount of Inflow
  • Nature and date of Issue
  • This is further divided into Cash and Non-Cash Transaction
  • The nature of the issue i.e IPO/FPO, preferential allotment/private placement, Rights, ESOP, other(specify)
  • Break up of premium
  • Total Inflow in rupees on account of shares/convertible debentures/others to non-residents
  • It asks for further 3 options – Remittance through AD, debit to NRE/FCNR/Escrow A/c with bank, Others (Specify)
  • Date of Advance Reporting to the RBI regarding the above-mentioned transaction
  • Disclosure of the Fair Value of the shares issues
  • Post issue pattern of shareholding
  • Declaration by the Investee Company (Select tick whichever applicable)
  • Attachments:
    • Company Secretary Certificate
    • Share Valuation Certificate by Chartered Accountant
    • Board Resolution for share allotment


Our founder has 17 years' of experience providing consultancy to businesses in various sectors