Set Up a Company in India
Foreign investors looking to set up a company in India can choose among the four business entities, namely:
- Private Limited Company
- Public Limited Company
- Branch Office
- Representative Office
Private Limited Company
According to FEMA guidelines, the most common business entity to set up in India is the Private Limited Company. To incorporate this entity, a minimum of 2 shareholders is required. They can be natural persons or legal entities headquartered in India or overseas. After incorporation, the company can have a maximum of 200 shareholders and the ownership of shares can be transferable. Investors seeking to register this entity are eligible for government incentives in India.
A minimum of 2 and a maximum of 15 directors are required. At least one of said directors must be a citizen of India. The directors and shareholders, both local and foreign, are required to register their personal information in public records.
There is no minimum capital requirement for setting up a Private Limited Company in India.
The shares of a Private Limited Company cannot be publicly traded.
Public Limited Company
Those who want to be listed on the Indian Stock Exchange can set up a Public Limited Company. Unlike Private Limited Companies, this entity can offer shares directly to the public and accept foreign direct investments (FDI).
To set up a Public Limited Company, at least 7 shareholders and at least 3 directors are required. At least one of said directors must be a resident of India. After incorporation, shareholders can easily transfer their shares.
There is no minimum capital requirement for setting up a Public Limited Company in India.
This type of entity requires government approval for managerial remuneration, if the remuneration exceeds the statutory limits.
Foreign companies seeking to carry out their business activities in India can set up a Branch Office. This type of entity is only allowed to engage in the same business activities as its parent company, unless it applies for prior approval from the Reserve Bank of India (RBI) to engage in other business activities.
Setting up a Branch Office in India requires approval from the RBI. After obtaining a license from RBI, the foreign company can start operating in India through the Branch Office.
There is no minimum capital requirement for setting up a Branch Office in India.
Branch offices cannot directly carry out manufacturing activities, but they are allowed to subcontract with a licensed manufacturer in India. If incorporated in a Special Economic Zone (SEZ), they are only permitted to conduct business activities within the zone.
Foreign companies seeking to test their potential in the Indian market before making any significant investment can establish a Representative Office.
Also referred to as a liaison office, a Representative Office is a non-profit generating entity only permitted by law to promote services/products, provide marketing/sales support to the parent company overseas, and/or conduct market research related to the parent company’s industry.
There is no minimum capital requirement for establishing a Representative Office in India.
An Indian Representative Office is not allowed to do business, earn income, and make investments in India. It is also not allowed to solicit local customers of its parent company. Moreover, it is not allowed to purchase any immovable property, i.e land or office.