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Unincorporated entities include liaison offices, branches, project offices or trusts. Legal entities (e.g. limited liability partnerships, joint ventures or wholly owned subsidiaries) are considered separate legal entities with a more structured set-up.

Liaison Office (LO)

Foreign companies can open liaison offices to carry out market research activities and interact with potential Indian customers. A liaison office, also known as a representative office, is not allowed to carry out any revenue generating business activities.

Not being able to engage in commercial, trading or industrial activities, operating costs must be sustained by remittances received by their foreign parent companies.

Foreign companies often use liaison offices to raise awareness of their services and products, promote business activities, build networks and explore market potential.

The liaison offices are organised in accordance with the provisions of the Foreign Exchange Management Act (1999).RBIestablished under the guidance of the

branch offices

A foreign company can set up a branch to carry out branch activities of its business. The branch must meet all expenses through remittances from the foreign head office or income generated from its Indian operations - as permitted by the Reserve Bank of India. Unless the branch is located in a Special Economic Zone (SEZ), the branch cannot engage in export manufacturing activities.

The establishment of these offices is subject to the provisions of the Reserve Bank of India and the Companies Act, 2013.

The following activities can be carried out at the branch:

Export/import of goods; Provision of professional or consultancy services; Carrying out research work undertaken by the parent company; Promoting technical or financial co-operation between Indian companies and parent companies or overseas group companies; Representing the parent company in India and acting as a purchasing/sales agent in India; Provided information technology and software development services in India; Providing technical support for products supplied by parent/group companies; and Representation of foreign airlines/shipping companies.

The following activities are prohibited in the branch:

Any form of retail trading activity; Any direct or indirect manufacturing or processing activity in India. All profits are freely remittable out of India subject to relevant taxes.

Set-up time: 6-8 weeks if all documents are in order.

General characteristics of a branch include:

The name of the Indian branch should be the same as that of the parent company; The regulatory authority for the branch licence shall be the Reserve Bank of India; Suitable for foreign companies looking for temporary offices; If the branch office does not derive income from its Indian operations, all expenses of the branch office are borne by the head office; The customer base of the foreign company can be increased by expanding the business to different locations (but not more than 4 offices) spread over different parts of India. Additional offices require approval from RBI.

Prerequisites for the establishment of a branch

In order to approve a branch of a foreign company, the Reserve Bank of India considers the following additional criteria:

Record of profitability within the first five fiscal years in the home country; Net worth must not be less than $100,000 or its equivalent, based on a current audited balance sheet verified by a certified public accountant. Requirements for setting up a branch

The branch must apply for approval from the Reserve Bank of India as per FEMA regulations. A copy of the Certificate of Incorporation or MOA and AOA must be submitted along with audited balance sheets of the parent company for the last three years. A PAN must also be obtained and registered with RoC through the Ministry of Corporate Affairs website.

The Reserve Bank of India will track the financial status of the applicant company and its proposed scope of activities. The application will be submitted through the FNC form (Annexure 1) and will be considered through two routes:

Reserve Bank Route - If the foreign entity's principal business is in an industry in which 100% foreign direct investment (FDI) is permitted under the automatic route. Government Pathway - If the parent company's business does not fall under the automatic pathway under the FDI policy.

To get approval from RBI, the applicant company needs to submit its application through an authorised dealer. Authorised dealers are various institutions that have a banking licence.

Documents required to set up a branch Three copies of the FNC form; Letter from the principal officer of the parent company to RBI; Power of attorney from the parent company authorising the local representative; Power of attorney/resolution of the parent company; Letter of condolence from the parent company intending to support operations in India; Two copies of the parent company's Certificate of Incorporation, Memorandum and Articles of Association (chartered document) in English duly authenticated by the Indian Embassy or Notary Public in the country of incorporation; Certificate of Incorporation translated, notarised and authenticated by the Indian Consulate; Audited balance sheets and annual accounts of the parent company for the last three years, translated, notarised and certified by the Indian Consulate; Name, address, email ID and telephone number of the authorised person in the country; Details of the organisation's banker and country of origin and bank account number; The organisation undertakes to accept the reports/comments made by the Government of India/Reserve Bank of India to its bankers; Anticipated level of funding to conduct business in India; Details of the address of the proposed local office, the number of persons likely to be employed, the number of foreigners among such employees and the address of the head of the local office, if decided; Brief information on the activities of the applicant organisation in the home country and the products and services it offers; Bank certificates; Up-to-date identification of all directors, certified by the consulates and banks of their home countries; Up-to-date proof of address for all directors, certified by the consulate and bank of their home country; Details of individuals/companies holding more than 10% shares; Organisational structure and shareholding pattern; Complete KYC of shareholders holding more than 10% shares in the applicant company; Resolution to open a bank account with the bank; Duly signed Bank of India bank account opening form.

Project Office

A project office may be established where a foreign company has been awarded a contract from an Indian company to execute a project in India. The project office can be established for a limited period. For example, if a foreign company has been awarded a contract to execute an infrastructure or installation project in India through a project office duly registered with the Reserve Bank of India and the Registrar of Companies (ROC).

eligibility criteria

A foreign company can set up a project office to execute a project in India only if it has been awarded a contract from an Indian company and the following conditions are fulfilled:

The project is directly funded by overseas remittances; The project has been approved by the relevant authorities; The project is financed by international financial institutions; The Indian company awarding the contract has obtained a loan from an Indian bank or other public financial institution.

Exceptions:

The Reserve Bank of India, in consultation with the Government of India, approves the opening of offices in Jammu and Kashmir, the North Eastern States or the Andaman and Nicobar Islands by entities resident in Pakistan, Bangladesh, Sri Lanka, Iran, Afghanistan, China, Macau or Hong Kong. In all other cases, authorised primary dealer banks may grant approval; If the contract entered into by the project office has been awarded by the Ministry of Defence, no other approval from the Government of India will be required for its proposal relating to the defence sector. Requirements for the establishment of a project office

The project office can maintain an interest-free foreign currency account in India for expenses and credits. The office can maintain both foreign currency and Indian rupee accounts while operating in India. Upon completion of the project, the project office can repatriate any capital surplus after payment of all taxes and completion of the final audit of the accounts.

Procedures for the establishment of a project office Submit an FNC form request; Submission of a copy of the certificate of incorporation; Submission of the latest audited balance sheet of the country; and Submit a bank report from a bank in the applicant's home country.

Establishment time: 4 weeks.

Limited Liability Partnership (LLP)

Limited Liability Partnership (LLP) is the preferred company formation strategy for many SMEs in India.

An LLP is a hybrid of a partnership and a company (private or public.) An LLP has limited liability to its partners as a company and receives tax benefits as a partnership. The liability of the partners is limited to the amount of their agreed capital contribution, which provides flexibility without the imposition of detailed legal requirements.

FDI from LLP under the automatic route is subject to the following conditions:

LLPs should be in industries that do not have performance conditions linked to FDI, which refers to industry-specific conditions for firms receiving foreign investment; LLPs should be in industries where 100% FDI is permitted; Satisfy the conditions of the LLP Act, 2008.

Eligible forms of FDI received from foreign entities include their investments in the form of capital contributions or transfers of profit shares in the LLP capital structure.

Establishment timeline: 4-6 weeks if all documents are complete

Eligible investors include all foreign individuals/entities, with the following exceptions:

Foreign portfolio investors; Foreign institutional investors; Foreign Venture Capital Investors who have been registered under the guidelines of the Securities and Exchange Board of India (SEBI). Advantages of LLP The process is simpler and less costly than that of a public or private limited company. The minimum government fee for setting up an LLP is INR 500 (USD 7) and the maximum fee is INR 5,000 (USD 70) depending on the capital contribution; There is no need to have the accounts audited unless the annual turnover exceeds INR 4 million (USD 55,750) or the contribution to the LLP exceeds INR 2.5 million (USD 34,900); There is no minimum capital requirement to register an LLP; Partners are not required to use their personal assets to pay off the firm's debts; Partners can enter into any legal contract outside India. Requirements for setting up an Indian LLP It takes two people to register an LLP, but there is no limit to the number of partners; Obtain a Designated Partner Identification Number (DPIN) by submitting electronic form DIR-3 through the Department's online portal; Obtain the Partner's Digital Signature Certificate (DSC); Fill in Form 1 to apply for registration of the name of the LLP; Once the name (which must be unique) has been approved, complete Form 2 (Formation Documents and Declaration) online; The initial LLP agreement must be filed within 30 days of the LLP's formation.

After submitting the required forms and documents, the Registrar will register the LLP within 14 days of the submission of Form 2. The LLP must be registered with the RoC. There is no limit to the maximum number of partners, but a minimum of two partners are required to form an LLP, at least one of whom must be resident in India.

Convert to LLP

Existing partnerships as well as existing private or public companies can be converted into LLPs.LLPs are also required to obtain a Permanent Account Number (PAN).The tax on LLPs is 30% on their gross income.If the gross income of an LLP exceeds INR 10 million (USD 140,000), an additional surtax of 12% will be levied. In addition, a surtax of 4% on health and education will be added to the income tax and applicable surtax.

Wholly Owned Subsidiary (WOS)

A Wholly Owned Subsidiary (WOS) operates as a separate legal entity with 100% of ordinary shares owned by another company, the parent company. Since WoS requires a minimum of 2 shareholders, the foreign holding company may nominate a person or another company to hold 1 share and the remaining shares may be held by itself.

WOS allows the foreign investor to control business operations with limited responsibilities and fewer restrictions on business activities than a branch, liaison office or project office. However, activities must be in accordance with FDI policies.

Foreign companies can enter into joint ventures with Indian partners in sectors where 100% FDI is not permitted.

Establishment time: 4-8 weeks if all documents are in order.

Requirements for the establishment of WOS At least 2 shareholders. No minimum share capital is required. A minimum of two directors (one of whom has resided in India for at least 182 days in the previous financial year) must be appointed and registered through the Director Identification Number (DIN) electronic filing system in India. No minimum capital is prescribed.

The following forms along with necessary documents must be submitted to the Ministry of Corporate Affairs for setting up a WOS in India:

SPICe+ for company formation

Upon submission of the documents, the Registrar of Companies will issue a Certificate of Incorporation and a Company Identification Number. It takes approximately four to five weeks to complete the process. Form INC 20A must be filed with the Registrar of Companies within 180 days of incorporation to obtain a Certificate of Commencement of Business.

WOS will be subject to Indian taxes and laws like any other domestic company and will have to pay Corporate Income Tax (CIT).

Joint Venture (JV)

A joint venture is a partnership in which two or more companies or individuals agree to pool their capital or goods in a single unified project. In India, joint ventures are most popular in non-100% FDI sectors.

Joint ventures allow foreign companies to utilise the existing networks of their Indian partners and, once taxes are paid, these companies can repatriate their profits in India.

Joint ventures can be formed with any existing business entity in India.

The corporate joint venture will also be subject to the country's tax laws, the Federal Emergency Management Agency (FEMA), labour laws (e.g., the Wages Code 2019, the Industrial Disputes Act 1947, and state-specific shop and establishment legislation), the Competition Act 2002, and various industry-specific laws.

Establishment time: 4-8 weeks.

Requirements for the establishment of a joint venture

Once a partner/associate is selected, a Memorandum of Understanding (MoU) or Letter of Intent (LOI) will be signed by both parties.

The MOU and JV agreement/shareholders agreement must be signed in consultation with a firm of Chartered Accountants who are well versed with FEMA, Indian Income Tax Act, 1961, Companies Act, 2013, international laws and applicable Indian rules, regulations and procedures.

Terms and conditions should be properly assessed before entering into a contract.

Foreign companies no longer require a No Objection Certificate (NOC) from the Indian associate to invest in the sector in which the joint venture operates. As a result, foreign companies in existing joint ventures can operate independently in the same line of business. Previously, they needed to obtain prior approval from the Indian partner.

Terms and conditions should be properly assessed before entering into a contract.

Before entering into a joint venture contract, the following points must be properly assessed:

Applicable law; Shareholding structure; Board composition; Board of Management; Frequency of board meetings and their location; General meetings of shareholders and their location; The composition of the quorum for important decisions at board meetings; Transfer of shares; Dividend policy; Use of cash or in-kind funds; Change of control; Restrictions/prohibitions on transfers; Non-competition parameters; Confidentiality; Compensation; Breaking the deadlock; Jurisdiction to resolve disputes; Termination criteria and notice.

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What you need to know about investing in India: types of businesses foreign investors can set up in India www.deekpay.com