Business entities in India
Choosing the right vehicle and strategy for starting a business in a new jurisdiction is an important decision to make, especially in countries like India where red tape is plentiful. Healy Consultants has the expertise and experience to advise our Clients on the optimum corporate structure for India business setup. There are several ways of doing business in this country, most popular being through a private limited company. Please read further for additional information on the different types of business entities available in India.
Local business entities available
The Indian Limited Liability Company (private limited company)
- In India, this entity is officially called the Private Limited Company (Pvt. Ltd). It can be incorporated with a low minimum paid up capital of US$1,650 (INR100,000) and 2 directors and 2 shareholders. Although the shareholders can be of any nationality, at least 1 director must be an Indian resident;
- All the directors and shareholders will be required to register their personal details for public records. All directors are also required to obtain DIN and DSC numbers (directors identification numbers). See this page for further details on the steps required to register an Indian limited liability company;
- Best uses: The Indian LLC is recommended entity to enter into the local market and limit the liability of foreign investors, especially for export and direct sales, manufacturing and software development companies. Foreign investors with this permanent establishment will have access to a wide range of government subsidies that incentivize re-investment into the country.
The India limited liability partnership
- Foreigners can register limited liability partnerships in India. Under the Limited Partnership Act of 2008, all partners can now benefit from limited liability for the activities of the partnership and no minimum contribution is fixed. Partnerships formed by nonresident foreigners are required to appoint one resident manager in India;
- An Indian LLP is required to submit each year financial statements to the Indian tax authority. Such statements must be audited, unless the partnership is receiving income below US$500 (INR40,000) and has assets below US$375 (INR25,000);
- Best uses: A limited liability partnership is a flexible vehicle, subject to less compliance rules than a LLC. Its income is also directly taxed at the partners’ level.
The India free zone company (EPZ company)
- For our Clients willing to manufacture and export their products from India, registration of a company in an export processing zone is often an attractive solution. Registration requirements are the same as those applicable to a standard limited liability company, although the free zone authorities can require the owners to allocate higher amounts of paid-up capital;
- See this page for further information on Indian free zones and their taxation benefits;
- Best uses: manufacturing products to be exported to overseas markets.
The Indian Public Limited Company
- A public company can be incorporated with a minimum paid up share capital of US$8,060 and 3 directors and 7 shareholders. Although the shareholders can be of any nationality, at least 1 director must be an Indian resident. Such company is also required to go through an annual audit of its financial statements;
- Best uses: although it is not mandatory for a public limited company to be listed on the Indian stock exchange(s), an IPO is usually the purpose of the registration of such entity.
Registration by a foreign company
- This entity only functions within the scope defined by the parent company. In India, a branch office can engage in trade, professional consultancies, export/import of goods, invoicing and signing contracts. In order to incorporate a branch office, our Client will be required to obtain approval from the Reserve Bank of India (RBI). A branch incorporated in a Special Economic Zone (SEZ) can only conduct business activities within the zone itself;
- Best uses: registration of a branch is usually not advisable in India. An Indian branch of a foreign company has indeed not only as much administrative requirements as a subsidiary but also the disadvantages of incurring 43% corporate tax and presenting higher risk to liabilities directly borne by the parent company.
Representative office (liaison office)
- In India, this entity is called the liaison office. A liaison office assists the parent company in i) promoting export/import to and from India and ii) promoting technical and financial collaborations with other resident firms. Consequently, this business entity acts as a channel of communication between the parent company and potential customers/suppliers in India;
- Best uses: a representative office is a good option if you want to test the Indian market before committing major resources through the setup of a permanent establishment in the country. As an RO is a non-revenue generating entity, it is also the ideal setup to provide after sales customer support to local clients.
- This entity may be set up to carry out a specific contract for a specified time period within India. After the project is complete, the entity will be terminated. The operations of a project office will be taxed in the same way as the operations of a branch office. Remittance of profits outside India is allowed, subject to the prevailing exchange controls;
- Best uses: registration of a project office is a good vehicle for one off project. They indeed are much easier to de-register than a permanent establishment (branches and subsidiaries), which can turn into a complex affair.
Table of comparison between business entities
|LLC||LLP||EPZ company||PLC||branch||RO||Project office|
|Operations and logistics|
|Bank Signatory must travel?||No||No||No||No||No||No||No|
|Is doing business in India permitted?||Yes||Yes||Yes||Yes||Yes||No||Yes|
|Allowed to sign contracts with local clients?||Yes||Yes||Yes||Yes||Yes||No||Yes|
|Allowed to invoice local clients?||Yes||Yes||Yes||Yes||Yes||No||Yes|
|Can rent local office premises?||Yes||Yes||Yes||Yes||Yes||Yes||Yes|
|Tenancy agreement required before incorporation?||No||No||No||No||No||No||No|
|Allowed to import raw materials?||Yes||Yes||Yes||Yes||Yes||No||Yes|
|Allowed to export goods?||Yes||Yes||Yes||Yes||Yes||No||Yes|
|Accounting and tax|
|Corporate tax payable?||34%||0%||Up to 0%||34%||43%||None||43%|
|Corporate bank account?||SCB India||HDFC India||HSBC India||SCB India||Citibank India||Axis India||Citibank India|
|Statutory audit always required?||No||Yes||No||Yes||Yes||Yes||Yes|
|Annual tax return to be submitted?||Yes||Yes||Yes||Yes||Yes||No||Yes|
|Access to double taxation treaties?||Yes||No||Yes||Yes||Yes||No||Yes|
|Issued share capital required?||US$1,650||US$1||US$1,650||US$8,060||None||None||None|
|Resident director/manager required?||Yes||Yes||Yes||Yes||Yes||Yes||Yes|
|India shareholder/trustee/partner required?||No||Yes||No||No||No||No||No|
|Minimum number of directors/managers?||1||1||1||3||1||1||1|
|Minimum number of shareholders/partners?||1||2||1||7||Parent company||Parent company||Parent company|
|Individual shareholders/partners allowed?||Yes||Yes||Yes||Yes||No||No||No|
|Corporate director(s)/managers allowed?||No||No||No||No||No||No||No|
|Public register of shareholders and directors||Yes||Yes||Yes||Yes||Yes||Yes||Yes|
|Can the entity hire expatriate staff?||Yes||Yes||Yes||Yes||Yes||Yes||Yes|
|Fees and timelines|
|How long to set the company up?||2 months||2 months||2 months||2 months||3 months||3 months||3 months|
|How long to open corporate bank account?||1 month||1 month||1 month||1 month||1 month||1 month||1 month|
|Estimate of engagement costs||US$14,355||US$16,355||US$15,505||US$16,355||US$15,605||US$15,435||US$15,605|
Frequently asked questions
What business entity should I setup in India?The most commonly established company in India is the limited liability company due to relatively i) simpler formation procedures and ii) least cumbersome compliance requirements. Hence, we recommend you to opt for the LLC.
Why setup a company in India?India is one of the fastest growing economies in the world today. The Indian government offers several business grants and tax incentives, especially with regards to companies in the Special Economic Zones and the IT parks. Please refer to our main page to study the advantages and best possible uses of an Indian company.
Are ownership details of an India business setup available for public viewing?Yes. The ownership details of a company will be available for public viewing.