As Indian Company
India is one of the most alluring investment destination round the globe. The credit goes to numerous factor like exuberantly talented population, huge growing consumer market, large emerging economy and policy reforms like Startup India Movement, Digital India. All this comes with a deadly combination of low operational costs possible from infrastructures to phones to internet to labour to salaries to anything required to set up a business and attract largest Foreign Direct Investments (FDIs).
Further, with Ease of Doing Business reforms, company incorporation in India is now a flawless. Especially with SAS, where the entrepreneur gets a one stop solution for all pre and post incorporation requirements.
Any foreign investor/entrepreneur be it individual or a corporate can start a business in India:
As an Indian Company
- as a Wholly Owned Subsidiary
- as a Joint Venture or
- as a Subsidiary
As a Wholly Owned Subsidiary
A wholly owned subsidiary is a company whose 100% shares owned by another company. The company that owns the subsidiary is called the parent company or holding company.
A foreign investor can register a company in India, owe its 100% shares and make it a wholly owned subsidiary by bringing in Foreign Direct Investment (FDI) for such investment. This is subject to FDI up to 100 per cent is allowed under the automatic route i.e. no permission/government approval is required for making investment via FDI.
The holding/parent company owns all of the subsidiary's all the shares, it has the right to appoint the subsidiary's board of directors, which controls the subsidiary.
That’s why wholly owned subsidiary is most preferred choice of the foreign corporate investors around the world.
As a Joint Venture
A joint venture (JV) is a an entity set up by two business partners as business arrangement in which they agree to pool their resources for the purpose of accomplishing a specific task. JV is generally characterized by shared ownership, shared returns and risks, and shared governance. However, the venture is its own entity, separate from the participants' other business interests.
A foreign investor can register a company in India as a JV with an Indian or other partner and invest in it by bringing in Foreign Direct Investment (FDI). Here they can pool in resources and run business by sharing ownership, profits, risks, etc as mutually agreed between the parties in JV agreement.
Its the JV agreement that outlines the resources, such as money, properties, and other assets, each entity will bring to the venture. The contract also establishes how the venture will be managed and how control of it—and profits and losses from it—will be divided
Companies typically pursue joint ventures for one of four reasons: to access a new market, particularly emerging markets; to gain scale efficiencies by combining assets and operations; to share risk for major investments or projects; or to access skills and capabilities
This task can be a new project or any other business activity.
As a Subsidiary
A wholly owned subsidiary is a company whose atleast 51% shares are owned by another company. The company that owns the subsidiary is called the parent company or holding company.
A foreign investor can register a company in India, owe its 51% shares and make it a subsidiary by bringing in Foreign Direct Investment (FDI) for such investment. This is subject to FDI up to 51 per cent is allowed under the automatic route i.e. no permission/government approval is required for making investment via FDI.
The holding/parent company shall have the right to appoint the subsidiary's board of directors, which controls the subsidiary in proportion of their shareholding or otherwise agreed.
There are two main routes under which an Indian company may receive Foreign Direct Investment in India.
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.
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.
Lastly the 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
FDI in LLP
FDI permitted under automatic route in LLPs operating in sectors/ activities where 100% FDI is allowed, through the automatic route and there are no FDI-linked performance conditions
