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India as one of the fastest growing economies in the world attracts plenty of Foreign Direct Investment (FDI) and Private Equity capital. According to a recent report by Nomura, a Japanese Brokerage firm, FDI into India is likely to have hit high of $34.9 billion in financial year 2015, a massive 61.6 per cent jump from $21.6 billion in the previous fiscal. With the world’s second largest population and a large talent pool of skilled IT professionals, India continues to be an attractive destination for investment amongst Foreign Companies and Foreign Nationals. In this article, we provide a comprehensive guide to Indian Private Limited Company and India entry strategy for foreign nationals and foreign companies.
Overview of India Entry Strategies for Foreign Companies / Foreign Nationals
Following are the available types of entry strategies into India:
Incorporation of a Private Limited Company or Limited Company
Incorporation of a private limited company is the easiest and fastest type of India entry strategy for foreign nationals and foreign companies. Foreign direct investment of upto 100% into a private limited company or limited company is under the automatic route, wherein no Central Government permission is required. Hence, incorporation of a private limited company as a wholly owned subsidiary of a foreign company or joint venture is the cheapest, easiest and fastest entry strategy for foreign companies and foreign nationals into India.
Incorporation of a Limited Liability Partnership
Incorporation of a Limited Liability Partnership (LLP) is also an India entry strategy for foreign nationals or foreign citizens as 100% FDI in LLP is now allowed. An LLP, however, cannot have shareholders and must be represented by Partners – thereby making it an ideal choice for investment vehicles and professional firms.
Through Proprietorship Firms or Partnership Firms
Proprietorship firms or Partnership firms are the most basic types of business entities mostly used by very small businesses or unorganised players. Foreign investment into a proprietorship firm or partnership firm requires prior RBI approval. Hence, proprietorship firms or partnership firms are not suitable for a foreign company or foreign national investment into India.
Registration of Branch Office, Liaison Office or Project Office
Registration of Branch Office, Liaison Office or Project Office requires RBI and/or Government approval. Therefore, the cost and time taken for registration of branch office, liaison office or project office for a foreign company is higher than the cost and time associated with incorporation of a private limited company. Further, foreign nationals cannot open branch office, liaison office or project office. Hence, this option is limited to being an India entry strategy only for foreign companies.
FDI in Private Limited Company
Foreign Direct Investment (FDI) into an Indian Private Limited Company or Limited Company is allowed upto 100% in most sectors. Only a very few sectors require prior Central Government approval for investment by foreign company or foreign national. The following sectors require Government Approval for investment by Foreign Company or Foreign National:
- Petroleum sector (except for private sector oil refining), Natural gas / LNG pipelines.
- Investing in companies in Infrastructure
- Defence and strategic industries
- Atomic minerals
- Print Media
- Broadcasting
- Postal Services
- Courier Services
- Establishment and operation of Satellite
- Development of Integrated township
- Tea Sector
- Asset Reconstruction Companies