Foreign Company Registration
As India continues to transcend every boundary of economic success, it provides incredible growth opportunities to indigenous and foreign players. The past few years have witnessed the greatest impetus in FDI, making India a premium investment hub. If you are planning to set up a business in India as a foreign company, you must abide by the norms of Reserve Banks, the Companies Act, 2013, the Companies (Registration of Foreign Companies) Rules, 2014, and FEMA. Complying with these norms also signifies securing foreign company registration. With that being said, let’s delve into the requirements of securing such a registration.
What is a Foreign Company Under the Companies Act, 2013?
As per Sec 2(42) of the Companies Act, 2013, the overseas company refers to an entity registered in the resident nation but has a business place in India for serving operational endeavors.
Foreign company registration: How Foreign Entities Can Be Registered in India?
The section below briefs on Foreign Company Registration and its legalities
A foreign national can choose a legal structure like a private limited company in India to kickstart their business quest. Owing to digitization, the process of registering such a structure has become easier, transparent, and swift. Such a company can be incorporated either as a joint venture or a wholly-owned subsidiary.
Joint venture
The joint venture is a viable business model constituting at least two distinct business partners seeking growth or profit via collective endeavors, involving sharing of resources. To bring JV into effect, an overseas entity must foster a strategic partnership with an Indian company mandatorily.
It is a foremost requirement for setting up a JV in India, where one of the partners is non-Indian. Another key legality for establishing a JV includes drafting a MoU or a Letter of Intent. This document will impart legal gravity to the JV. The drafter must consider regional and international law while drafting such a key document.
Wholly-owned subsidiary
A foreign national can provide an Indian entity with 100% FDI via the automatic route for legalizing a business. The FDI of such a threshold will allow a foreign company to have complete control over the entity, making it a wholly-owned subsidiary.
A foreign company can start business endeavors as soon as they register their branch or liaison office in India. Legalizing these offices would require RBI’s permission.
Liaison office
The liaison office can allow a foreign entity to pursue a variety of liaison activities in India. The launch and running of a liaison office comes with certain financial obligations served by the parent company. The parent company must use foreign remittance to address the expenses of its liaison office.
Project Office
Project Office is an apparent choice for foreign companies catering to projects within Indian territories. If the Indian company is involved with a project allocation, securing RBI’s permission is paramount for opening a project office.
Branch office
The branch office essentially serves an extended arm of the parent company, allowing it to serve various business purposes. The formation of a brand office in India requires presenting evidence like business footprint and balance sheet, reflecting the profitability.
Legalities Pertaining To Foreign Company Registration in India
The process of securing a foreign company registration differs depending on which business model you choose. Here is the detailed illustration for the same:
The joint venture registration process
A joint venture is a legal arrangement wherein two distinct partners join forces to serve a common business goal. As mentioned, setting up a JV in India via a foreign partner requires collaboration with a registered Indian company. Furthermore, interested parties must draft a MoU or Letter of Intent to give JV a much-needed legal effect. The MoU must entail the agreement terms and other key norms that make JV a legal entity.
The wholly-owned subsidiary registration process
When it comes to establishing a wholly-owned subsidiary company, the following conditions come into play:
- At least one director should belong to Indian territory
- All directors must apply for DSC, which stands for Digital Signature Certificate, and DIN i.e. Director Identification Number.
- The drafting of charter documents like AoA and MoA is paramount.
- MoA must enclose the shareholders’ signature
- Filing form viz. SPICe+ is vital for registration. It entails two parts: Part A and B. Part A helps with name reservation, and later provides access to various services, including company registration.
- During application submission, ensure that the form accompanies mandatory paperwork including company share, share capital documents, director’s ID, business place address, etc.
Process of setting up a liaison office
RBI approval is paramount when establishing a liaison office in India. Besides, adherence to the following conditions is vital.
- The foreign company must not incur a loss in the erstwhile three FYs while operating in its home country.
- The net value of such an entity should be equal to or greater than USD 50,000.
- File establishment application via an Authorised Dealer Category–I Bank (AD) with the Foreign Exchange Department.
- Common annexures that accompany the application include AoA, MoA, latest audited balance sheet, etc.
- Securing PAN for a company is crucial for establishing a liaison office in India.
- If the applicant firm is a subsidiary, a Letter of Comfort from a parent company is essential.
- Approval from IRDAI (Insurance Regulatory and Development Authority) also plays a decisive role in legalizing a liaison office.
- If a principal business is financial or banking, securing approval from the Department of Banking Regulation (DBR) becomes mandatory for establishing a liaison office.
The process of setting up a project office
The establishment of the project office in India by a foreign entity requires RBI’s permission. However, fulfillment of the given conditions does not require RBI’s approval.
- An applicant firm must have secured a contract from an Indian company.
- Inward remittance from abroad should be the basis of project funding. The bilateral or multilateral International Financing Agency plays a vital role in this context.
- The project must have secured clearance from the competent body.
- A contract-granting company should not be a loan defaulter. Its funding source should be legitimate banks or lenders.
Process of setting up a branch office
A foreign company seeking to open a branch office must secure RBI’s approval after meeting the given norms:
- The principal business of a foreign company should not be other than trading or manufacturing
- Minimum net worth should be USD 1,00,000 with no loss incurred in the past 5 years.
- File establishment application via an Authorised Dealer Category–I Bank (AD) with the Foreign Exchange Department.
- Common annexures that accompany the application include AoA, MoA, latest audited balance sheet, etc.
Note: A branch office can cater to a limited number of business activities such as import, export, consultancy, research, promoting financial or technical collaborations, software development, technical support, etc. They cannot plunge into retail or manufacturing business directly or indirectly.
Conclusion
Foreign Company Registration is vital for overseas entities seeking to leverage the Indian economy for business growth. The conditions cited above are paramount for every foreign company looking to be a part of an exciting business landscape in India. As evident, each business model in India comes with a distinct set of legalities. Therefore, adherence to the same is vital for a hassle-free business journey.
Connect with Adviso, if confronting legalities is not something you are comfortable with. Our seasoned expert will take care of everything, be it application filing, arranging paperwork, or fetching pinpoint compliances. Stay atop business legalities and intricate compliances with Adviso.
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