With a whopping population of 1.4 billion people, India is considered one of the fastest-emerging economies in the world at present. This is why a large number of foreign nationals are vying to invest in various sectors of the country. Be it any sector such as manufacturing, real estate, pharmaceutical, retail, fashion, or anything else, India is full of possibilities and a lucrative opportunity for NRIs to invest in India. One promising way for them is to start a business venture in India. But, how? Well, here is a post that can help you understand how you can start a business in India as a NRI.
Different Approaches for NRIs To Open A Business in India
The Department for Promotion of Industry and Internal Trade, Ministry of Commerce and Industry, Government of India is constantly involved in drafting and updating its policy outline for Foreign Direct Investment (FDI) in the country. Various studies indicate that the Government of India (GoI) has been actively promoting foreign nationals to invest in start-ups, small businesses, and MSMEs. In fact, it has brought significant organizational changes to the law modules that directly impact foreign direct investment in India. This has brought in high levels of ease and steadfastness regarding the procedure for setting up business in India by foreign nationals. Let’s find out how a NRI can start a business in India.
For a foreign national or foreign organization, there are several options when it comes to setting up a business in India. They can take into the exact nature of the business along with numerous other aspects to decide the most appropriate business framework for their endeavor. Let’s look at a few of these approaches below.
Company registered under the provisions of the Companies Act, 2013
A company setup under the Companies Act, 2013 is considered the most apt approach for operating a business in India. Another option is to choose a Limited Liability Partnership (LLP) firm. Given the exact amount of capital, an NRI may either set up a Company or create an LLP. Though the LLP structure is easy to establish along with easy legal compliances, however, setting up a company would be beneficial when it comes to choosing funding and share allocation.
- Private Limited Company: The quickest and easiest way to set up a business in India for an NRI is to register the business as a Private Limited Company (PLC). Apart from a few excluded sectors, almost all sectors allow easy entry for foreign firms and nationals to set up business in India via FDI. There should be two shareholders in a Private Limited Company and a maximum of fifty shareholders. A Private Limited Company needs to have a minimum paid-up capital of Rs. 100,000.
- Public Limited Company: A Public Limited Company should have a minimum of 7 shareholders. There can be as much maximum no. of shareholders in a public company. A public company should maintain a minimum paid-up capital of Rs. 500,000.
If the company carries foreign shareholders, the foreign people must highlighted their contribution to the share capital by transferring from their foreign bank account through typical banking channels. The NRIs are also liable to receive their annual dividends/profits, if any. An NRI can serve as a Director / Managing Director / Whole-time Director / Manager of such a company in India.
Other Allowed Business Frameworks
- Liaison office: An overseas firm can choose to establish a liaison office for all its liaison chores in India. All expenses of a liaison office will be borne by the foreign company. A Liaison Office can undertake only liaison activities in India i.e. it can act as a channel of communication between the Head Office (established abroad) and parties in India. The Liaison Office is not allowed to undertake any business activities in India and cannot earn any income/profits in India.
- Branch office: Branch offices are allowed to be set up in India with specific approval from the Reserve Bank of India (RBI) for companies that are incorporated outside India and are engaged in manufacturing or trading activities.
- Joint Venture: A foreign company, to form a joint venture in India, will have to connect with a local partner, in the respective location where the business is to be established. The foreign company and the local partner will sign a Memorandum of Understanding (MOU), which outlines the basis for the joint venture agreement.
- Wholly-owned Subsidiary: An Indian Company will become a wholly-owned subsidiary of the foreign business when it makes a 100% FDI investment in it. A foreign company can make a 100% FDI to register its business in India.
- Project Office: A foreign company can set up a project office in India to execute projects given to them by Indian companies. However, to establish such a project office foreign company must obtain approval from the Reserve Bank of India (RBI).
Must read: What is the role of NRIs in the Indian economy?
Apart from a Liaison Office, all other aforementioned business structures are allowed to remit back to the NRIs any income obtained through the most appropriate banking channels complying with the underlying foreign exchange-related laws in India. Do remember that during the remittance of funds, subject to the aforementioned laws pertaining to foreign exchange, the remitted amount needs to be submitted to the bank along with Form A -2. The corresponding withholding taxes would also become applicable while remitting funds to foreign nationals who invested the money.
Documents Required From NRIs To Setup a Business in India
After knowing different approaches to business incorporation in India, it’s time to know the types of documents that are required for each type of business structure. Let’s look at them below.
Joint Venture Procedure
- MOU defining the fundamentals of a joint venture contract.
- Foreign organizations and local partners should negotiate and deliberate all the pointers mentioned in a joint venture agreement. The concerned agreement should be in line with local and global law.
- The MOU needs to be signed by the parties in a joint venture. It must include important clauses such as a dispute resolution clause, clauses that define shareholding patterns, Governing law clause, sections related to the transfer of shares, confidentiality section, non-compete, non-solicit, ownership of developed intellectual property, etc.
Process for a Company
- According to the Companies Act, 2013, at least two shareholders are required and the Directors will need to be chosen. All directors are obliged to secure a DIN and get digital signature certificates.
- To reserve the name, an application can be made using e-form RUN (“Reserve Unique Name”). Moreover, an application through SPICe+ e-form is supposed to be made along with the MOA and AOA of the Company. The company can be registered by filling and submitting the SPICe+ e-form. A wholly-owned subsidiary will also need to get Professional Tax Registration, a Bank Account, Shops and Establishment Registration, GST number, Employees Provident Fund registration, and Employees State Insurance Registration along with a PAN and TAN through an AGILE-PRO-S form.
- Eventually, the ROC online charges and stamp duty need to be deposited during business setup as per the authorized capital of the company.
Process for Liaison Office
- The foreign organization needs to verify its profit-making and its net value should not be below USD 50,000 for the establishment of a liaison office in India.
- An application shall be made to the Foreign Exchange Department through a chosen Authorised Dealer Category–I Bank (AD) [3].
- The application should be made to get the English version of the certificate of incorporation/registration or MOA or AOA.
- The updated audited balance sheet confirmed by the Indian Embassy or Notary Public
- The RBI will allot the liaison office a unique identification number
- Get a PAN from Income Tax Authorities and all the expenditures should be fulfilled completely through inward remittances of foreign exchange.
- Seek approval from the IRDAI (Insurance Regulatory and Development Authority).
Process for Branch Office
- The foreign organization must be involved in trading or manufacturing activities and possess a net value of not below USD 1,00,000 in its parent country.
- An application shall be made to the Foreign Exchange Department through a chosen Authorised Dealer Category–I Bank (AD).
- The application should be made to get the English version of the certificate of incorporation/registration or MOA or AOA.
- The updated audited balance sheet confirmed by the Indian Embassy or Notary Public
- The RBI will allot a branch office a unique identification number
- The foreign company needs to obtain a PAN from Income Tax Authorities
- Approval from the Reserve Bank of India (RBI) under FEMA 1999 and approval from the Insurance Regulatory and Development Authority (IRDA).
The Conclusion
The Indian government has taken several measures to promote the influx of FDI in India. Since FDI in India is growing with every passing year, these initiatives have proven their worth. India is a nation rich in commercial prospects and a culture that values relationships. The government promotes all sorts of trade and commerce. To gain more details on these measures, you can check out our post – link of another ARTICLE here. India now ranks higher than five years ago in terms of business ease of doing business. It is recommended to count on the best and most reliable firms that offer incorporation services in India if you are a foreign national or NRI wishing to establish a business in