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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:
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:
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, 2013.
THE LIAISON OFFICE IS PERMITTED TO COMMENCE FOLLOWING ACTIVITIES ONLY:
HOWEVER THERE ARE CERTAIN RESTRICTIONS ON LIAISON OFFICES, WHICH ARE AS FOLLOWS:
2. Setting up a Project Office in India : -
A foreign company, which has secured a contract to execute a project in India, is grant to set up Project Office in India. Project office approvals are granted only for the specific project being executed in India and must close after the project is finished. The offices may repatriate outside India, the excess of the project on its completion subject to certain conditions prescribed by RBI.
The company establishing project office in India is also required to register itself with the Registrar of Companies (ROC) and to fulfill with certain procedural formalities, as prescribed under the Companies Act, 1956. General permission has been granted by the Reserve Bank of India to set up a project office in India by a foreign entity, if the following conditions are satisfied.
A company or entity in India awarding the contract has been granted Term Loan by a Public Financial Institution or a bank in India for the project.
3. Setting up a Branch Office in India :
Permission to set up a branch office is granted by the Reserve Bank of India. Branch office of a foreign company in India based upon the approval from the RBI must be compulsorily registered under the (Indian) Companies Act, 2013. Upon registration under the Companies Act 2013, the branch office can carry on its business activities in the same way as a domestic company
A BRANCH OFFICE SO APPROVED AND REGISTERED CAN CARRY ON THE FOLLOWING ACTIVITIES:
NRIs / OCBs have been granted with the following facilities
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