How International Enterprises can enter India: Different Approaches to enter the market?

India is one of the fastest-growing emerging economies in the world. In 2020, despite the blows from the Covid-triggered crisis, India attracted an FDI of USD 64 billion, significantly jumping from 2019, when a total FDI of USD 51 billion was invested in India.

India is one of the biggest IT markets in the world and sizable portions of the FDIs are invested in the growing ICT sector. Likewise, other emerging sectors such as manufacturing and retail are also increasingly attracting international investments in India. 

Going forward, India will continue to consolidate its position as a global growth driver in the world economy. This will also entail increased international investments. 

From starting a simple trade or liaison office to set up an LLP (limited liability company) or registering a company (Under Company Act, 2013), there are multiple ways through which international entities can enter India. 

In this post, we will learn more about the various ways through which a foreign investor can set up in India. 

Liaison Office / Representative Office 

  • A foreign company or investor can set up a Liaison Office (LO) in India following approval from the foreign exchange department of RBI. 
  • LO is set for 3 years and can be extended for another 3 years. In specific sectors such as NBFC and the construction sector, the maximum period is 2 years.
  • Foreign companies use LO to interact with local businesses, government agencies, vendors, etc. It can provide a suitable platform to test Indian water before going full-fledged. 
  • It can also contribute towards the promotion of trade between the two countries. 
  • The liaison office, can’t be involved in any form of commercial activity such as manufacturing, trade, etc. The cost of a liaison office is run with the help of inward remittance. 
  • To apply to open a liaison office, ANNEX-1 form is filled. The approval process takes around ~ 40 days.  

Branch Office

  • A Branch Office (BO) can be formed in India by companies incorporated outside India
  • BO is a temporary entity and can help in testing the Indian water before a bigger financial commitment. 
  • A BO has the same name as the parent company
  • BO in general can’t engage in manufacturing activities. However, they can engage in manufacturing in 100% export-oriented SEZs
  • BO can act as a selling and buying agent on behalf of the parent company 
  • They contribute towards trade and export promotion between India and the host country
  • They can engage in consultation, research, and software development activities.
  • A foreign shipping or airline company can also operate as a BO in India.
  • In a sector wherein 100% FDI is allowed, BO can be formed by applying to the foreign exhcnage department of RBI. In other sectors, permission from the Ministry of Commerce is required.  

Local Associate 

  • Foreign companies can appoint a Local Associate (LA) instead of opening a LO or BO. 
  • Appointing an LA can offer all the benefits of a LO or BO at a relatively cheaper cost
  • LA can conduct preliminary market research activities on behalf of the foreign enterprise
  • LA can help in facilitating communication with key stakeholders in India- governing agencies, local business, etc.
  • LA can act as a sourcing and purchasing agent for the parent company. Likewise, it can offer pre-sales and post-sales services. 
  • No prior permission is needed to appoint an LA. An arrangement with an LA can be made following an MoU.  

LLP (Limited Liability Partnership)

  • GOI has allowed LLP formation for foreign investors in 2015. Since then, it is one of the preferred modes of operating in India.
  • LLP can be formed only in sectors wherein 100% FDI is allowed under automatic route. 
  • LLP will have two partners and two designated partners. The partners can be designated partners. 
  • First Partners who are Indian citizens, would require a Permanent Identification Number (PAN) from the Income Tax Department of India. Foreign nationals do not require PAN
  • Designated partners need a Digital Signature. 
  • Designated partners will need a DPIN (Designated Partner Identification Number). In case of the partners have DIN (Director’s Identification Number), DPIN is not required. 
  • LLP needs to clearly define the capital contribution by each partner. Likewise, it should outline the business objective of the business. 
  • The Indian state, wherein LLP will be registered should be carefully chosen. It should be noted within a state, the registered office can be easily changed but it is a cumbersome process to change the office from one state to another.  

Pvt. Ltd Company 

  • Foreigners can form a Pvt. Ltd company, (governed by the company act 2013)
  • Foreign investment in a Pvt. Ltd is subject to FDI rules. 
  • A Pvt. Ltd company will at least have two shareholders/ directors. 
  • Indian and NRI directors will need to have PAN 
  • Shareholders need to have a digital signature.
  • Each shareholder/ director will need a DIN or DPIN
  • The state of registration, share capital, and objective of business need to be clearly defined.  

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