Business Setup and FEMA(Setting Up Business in India)

Doing business in India has improved in the last few years as per the MAKE IN INDIA campaign and the ease of doing business in India campaigns of Government of India

A person can shape his idea in any of the following form:

(1) Company Private/Public

Private company is a company having minimum of two members and maximum 200, minimum two directors and no minimum paid up capital requirement with a restriction that its shares can never be issued to public.

Public company is a company having minimum seven members without any limit on maximum number of members, minimum three directors and no minimum paid up capital requirement with full liberty of issuing its shares to any person.

Non Profit Company- According to section 8 Companies Act, 2013, a section 8 company can be established ‘commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any other useful object’, provided the profits, if any, or other income is applied for promoting only the objects of the company and no dividend is paid to its members.

Non Profit Company

According to section 8 Companies Act, 2013, a section 8 company can be established ‘commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any other useful object’, provided the profits, if any, or other income is applied for promoting only the objects of the company and no dividend is paid to its members.

(2) LLP

The Limited Liability Partnership (LLP) is viewed as an alternative corporate business vehicle that provides the benefits of limited liability like that of company but allows its members the flexibility of organizing their internal structure as a partnership based on a mutually arrived agreement.

3) Partnership Firm

Partnership is constituted by an agreement between the partners. The agreement may be in writing or oral which determines the constitution, rights and profit sharing of all the partners.

(4) Society/NGO

Societies are registered under the Societies Registration Act, 1860.As per Section 20 of Societies Registration Act, 1870 any seven or more person associated for the promotion of science, literature, or the fine arts, for instruction, the diffusion of useful knowledge, the diffusion of political education, the foundation or maintenance of libraries or reading rooms for general use among the members or open to the public, or public museums and galleries of painting and other works of art, collections of natural history, mechanical and philosophical inventions, instruments, or designs.

(5)Trust

As per section 7 of the Indian Trusts Act, a trust can be formed :

by every person competent to contract, and

by or on behalf of a minor, with the permission of a principal civil court of original jurisdiction but subject in each case to the law for the time being in force as to the circumstances and extent in and to which the Author of the Trust may dispose of the Trust property.

Apart from individuals, a body of individuals or an artificial person such as an association of persons, an institution, a limited company, a Hindu undivided family through it's karta, can also form a trust. The instrument by which the trust is declared is called instrument of Trust, and is generally known as Trust Deed.

A foreign Company/individual/NRI can make investments/register/incorporate/set up their business in India in the following forms:

By incorporating a :

Company as per Companies Act, 2013 as a Joint Venture or a Wholly Owned Subsidiary.

Limited Liability Partnership as per LLP Act,2008.

By setting up of :

Project office

Branch office

Liaison office

There are two main routes under which an Indian company may receive Foreign Direct Investment in India.

Automatic Route

Government Route

Automatic Route:

FDI up to 100 per cent is allowed under the automatic route in all activities/sectors except where the provisions of the consolidated FDI Policy, paragraph on 'Entry Routes for Investment' issued by the Government of India from time to time, are attracted. FDI in sectors /activities to the extent permitted under the automatic route does not require any prior approval either of the Government or the Reserve Bank of India.

Government Route:

FDI in activities not covered under the automatic route requires prior approval of the Government which are considered by the Foreign Investment Promotion Board (FIPB), Department of Economic Affairs, Ministry of Finance.
Once investment is made under the Automatic Route or with Government approval the foreign Company needs to inform within 30 days of the receipt of the inward remittance in the bank account of the Indian company and issue of shares to non residents.the prescribed form for reporting issue of shares to foreign investors by Indian Company is Form FC-GPR

Sectors in which FDI is prohibited:

Lottery Business including Government/private lottery, online lotteries, etc.

Gambling and Betting including casinos etc.

Chit funds

Nidhi company

Trading in Transferable Development Rights (TDRs)

Real Estate Business or Construction of Farm Houses ‘Real estate business’ shall not include development of townships, construction of residential /commercial premises, roads or bridges and Real Estate Investment Trusts (REITs) registered and regulated under the SEBI (REITs) Regulations 2014.

Manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes

Activities/sectors not open to private sector investment e.g. Atomic Energy and (II) Railway operations

What is a Branch Office, Liaison office and Project Office?

Branch Office:

A Branch Office may be defined as any establishment carrying on either the same or substantially the same activity as that carried on by the head office of the company.

Liaison office:

Liaison Office means a place of business to act as a channel of communication between the Principal place of business or Head Office by whatever name called and entities in India but which does not undertake any commercial /trading/ industrial activity, directly or indirectly, and maintains itself out of inward remittances received from abroad through normal banking channel.

Project Office

Reserve Bank has granted general permission to foreign companies to establish Project Offices in India, provided they have secured a contract from an Indian company to execute a project in India.