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Entry Options for Foreign Investors: A foreign company that is planning to set up business operations in India has the following few options:
Automatic Route 100% Foreign Direct Investment (FDI) is allowed under the automatic route in all the activities/ sectors without the approval of the Government of India (GOI), except the following:
Government Approval Route all the activities that does not come under the automatic route and require prior Government approval. The areas/ sectors/ activities hitherto not open to FDI/ NRI investment shall continue to be so unless it is otherwise notified by the Government of India (GOI).
A company that can offer shares to the public is termed as a public limited company. The Companies Act 1956 mandates a list of criteria that have to be met by the public limited companies before they start their business operations in India. A few of these criteria are listed below:
A private limited company is not owned by any governmental body, and it does not offer public shares. The number of shareholders for a private limited company is restricted to a maximum 50, whereas the minimum required is 2. The shareholders, however do not have the power to transfer or trade their shares publicly.
All foreign companies are allowed to set up a project office or a site office in India. This facility is allowed as a temporary arrangement, exclusively for the project mentioned in the application, and its activities have to be terminated as soon as the project is over. There are certain conditions mentioned as general permission policy which have to be met before establishing the project offices.
The activities of a liaison office in India are restricted to collecting information, promoting export and import activities and assisting in both technical and financial collaboration with other groups or companies.
The following are the requirements to set up a Liaison Office/ Representative Office in India.
Branch offices are allowed for companies that are involved in manufacturing as well as trading businesses in foreign countries. They need to get prior approval from the RBI. The activities of the branch offices in India are restricted to the following activities alone.
The profit acquired by the approved branch offices can be remitted outside India, after paying the net applicable taxes and meeting other formalities as per the RBI guidelines.
Joint Venture companies are the most preferred form of corporate entities for doing business in India. There are no separate laws for joint ventures in India. The companies incorporated in India, even with up to 100% foreign equity, are treated the same as domestic companies. A Joint Venture may be any of the business entities available in India.
A typical Joint Venture is where:
The above two parties subscribe to the shares of the joint venture company in agreed proportion, in cash, and start a new business.
Foreign companies are also free to open branch offices in India. However, a branch of a foreign company attracts a higher rate of tax than a subsidiary or a joint venture company. The liability of the parent company is also greater in case of a branch office.
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