A. AS AN INDIAN COMPANY
Foreign equity in Indian companies can be up to 100% depending on the demand of the investor and subject to equity caps in respect to the area of activities under the Foreign Direct Investment (FDI) policy. For registration and incorporation of an Indian Company, an application has to be filed with Registrar of Companies (ROC). Once the company has been appropriately registered and incorporated as an Indian company, it is subject to laws and regulations as suitable to other domestic Indian companies.
1. JOINT VENTURE:
Foreign companies can set up their operations in India by forming strategic partnership with Indian partners. Setting up of operations over a Joint Venture may provide the following advantages to a foreign investor:
- Already established distribution / marketing set up of the Indian partner.
- Available financial resources of the Indian partner.
- Already established contacts of the Indian partners that help ease the process of setting up operations.
Foreign investments are accepted through two routes as under:
1.1 AUTOMATIC ROUTE: Approvals for foreign equity up to 50 percent, 51 percent and 74 percent are given on an automatic basis, subject to attainment of prescribed parameters in certain industries as specified by the Government. RBI accords automatic approval to all such cases.
1.2 GOVERNMENT APPROVAL: Approval from Foreign Investment Promotion Board (FIPB) is appropriate in all other cases.
2. WHOLLY OWNED SUBSIDIARY: -
The foreign investors have the choice of setting up a wholly owned subsidiary, wherein the foreign company owns 100 percent of the Indian company. All such cases are subject to prior confirmation from the Foreign Investment Promotion Board (FIPB). Some of the basis for setting up wholly owned subsidiary is as follows:
- Only a "holding" operation is involved and all subsequent / downstream investments need prior approval of the Government.
- Where proprietary technology needs to be secured or sophisticated technology is to be introduced.
- At least 50 percent of the production is to be exported.
- Proposals for consultancy.
- Proposals for infrastructure like roads, industrial model towns, industrial parks etc.
B. FOREIGN COMPANY IN INDIA
1. Liaison Office / Representative Office in India:-
A Liaison Office functions as a representative office set up basically to examine and understand the business and investment climate. Any foreign company proposes to establish a Liaison Office in India is needed to obtain prior approval from the RBI, the Apex Bank of India which may take up to 2-4 weeks for execution of the application. Approval is usually granted for 3 years and can be renewed on expiry thereof. The company is also required to register itself with the Registrar of Companies (ROC) and to comply with certain procedural formalities, as prescribed under the Companies Act, 1956.
THE LIAISON OFFICE IS PERMITTED TO COMMENCE FOLLOWING ACTIVITIES ONLY:
- Representing the parent Company in India
- Promoting export / import from / to India
- Promoting technical / financial combination between the parent company and companies in India
- Acting as a communication channel between the parent company and its present or prospective customers in India
HOWEVER THERE ARE CERTAIN RESTRICTIONS ON LIAISON OFFICES, WHICH ARE AS FOLLOWS: