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Setting business in India

Information with regard to limited liability partnership agreement and changes, if any, made therein

  • 1. Indian Company*

  • Wholly Owned Subsidiary
    JV/ Wholly Owned Subsidiary as

  1. Private Limited or
  2. Public Limited Company, subject to Indian Companies Act, 2013

  • 2. Foreign Company**

  • Liaison Office: To represent the parent company in India.

  • Branch Office: To undertake activities such as Export, Import, research, consultancy etc.

  • Project Office: Activities as per contract to execute project

  • 3. Limited Liability Partnership

  • LLP: Subject to provisions of LLP.

  • Act, 2008: 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***

* Incorporation of a company in India is subject to sectoral caps and requisite approvals
**RBI guidelines regarding the establishment of LO / BO / PO. As per Indian Companies Act 2013, only a resident Indian with PAN to be appointed for receiving notices in India for foreign company.
***For FDI-linked performance conditions, please refer Consolidated FDI Policy.

Types of business establishments in India

Factors of Comparison Private Public OPC LLP
Min Members 2 7 1 2 Partners
Max Member 200 Unlimited 1 No Limit
Min Directors 2 3 1 2 Designated Partner
Max Directors 15* 15* 15* NA
*Company may appoint more than fifteen directors after passing a special resolution, further provided that such class or classes of companies as may be prescribed, shall have at least one woman director (Rule 3 of The Companies (Appointment and Qualification of Directors) Rules, 2014)
Resident Director 1 Mandatory 1 Mandatory 1 Mandatory 1 Designated Partner
Minimum Capital No minimum requirement No minimum requirement No minimum requirement No minimum requirement
Regulator Registrar of Companies Registrar of Companies Registrar of Companies Registrar of Companies
Credibility High High Medium Medium
Investor Preference High High Low Medium
Taxation       30% plus surcharge if applicable plus cess
Conversion Can be converted into LLP Can be converted into LLP Cannot be converted before 2 years Cannot be directly converted into a Private Limited Company
Transfer of Ownership Ownership can be transferred Ownership can be transferred Ownership can be transferred to nominee in the event of death of owner Ownership can be transferred
Subscription of Shares Public subscription not allowed Public subscription not allowed Public subscription not allowed Public subscription not allowed
Issue of Prospectus Not Mandatory Mandatory In case of public issue Not Mandatory Not Mandatory
Managerial Remuneration No limit for managerial personnel Shareholder approval is required, if remuneration payable is above limits NA Remuneration is based on LLP agreement & Sec 40a
Commencement of Business / Operations Declaration to be filed prior to commencement in e-Form INC-20A within 180 days from the date of incorporation Declaration to be filed prior to commencement in e-Form INC-20A within 180 days from the date of incorporation Declaration to be filed prior to commencement in e-Form INC-20A within 180 days from the date of incorporation Immediately after obtaining certificate of incorporation
Legal Status Private Company is a separate legal entity registered under Indian Companies Act, 2013. The directors are liable for defaults made under the Act. Public Company is a separate legal entity registered under Indian Companies Act, 2013. The directors are liable for defaults made under the Act. OPC is a separate legal entity registered under Indian Companies Act, 2013. The directors are liable for defaults made under the Act. LLP is a separate legal entity registered under Indian LLP Act, 2008. The designated partners of LLP are liable for contraventions under the Act.
Governing Act / Law Indian Companies Act, 2013 Indian Companies Act, 2013 Indian Companies Act, 2013 LLP Act, 2008
Annual Statutory Filings Annual statement of accounts & annual return with ROC in e-Form AOC-4, e-Form AOC-4-XBRL & e-Form MGT-7 Annual statement of accounts & annual return with ROC in e-Form AOC-4, e-Form AOC-4-XBRL & e-Form MGT-7 Annual statement of accounts & annual return with ROC Annual statement of solvency & annual return with ROC in e-Form 8 & e-Form 11
Annual Filings & Audit IT return to be filed. Audit mandatory IT return to be filed. Audit mandatory IT return to be filed. Audit mandatory IT return to be filed. Audit mandatory in case turnover exceeds INR 40 lakhs or contribution exceeds INR 25 lakhs
Basic Registration

The following registrations / approvals will be required:

  1. PAN
  2. TAN
  3. GST
  4. Profession Tax
  5. Company Tax
  6. Import Export Code
  7. EPF
  8. ESI

The following registrations / approvals will be required:

  1. PAN
  2. TAN
  3. GST
  4. Profession Tax
  5. Company Tax
  6. Import Export Code
  7. EPF
  8. ESI

The following registrations / approvals will be required:

  1. PAN
  2. TAN
  3. GST
  4. Profession Tax
  5. Company Tax
  6. Import Export Code
  7. EPF
  8. ESI

The following registrations / approvals will be required:

  1. PAN
  2. TAN
  3. GST
  4. Profession Tax
  5. Company Tax
  6. Import Export Code
  7. EPF
  8. ESI
Statutory Audit Financials would be liable to Statutory Audit by a Chartered Accountant Financials would be liable to Statutory Audit by a Chartered Accountant Financials would be liable to Statutory Audit by a Chartered Accountant Financials would be liable to Statutory Audit by a Chartered Accountant in case turnover exceeds INR 40 lakhs or contribution exceeds INR 25 lakhs
Internal Audit Applicable subject to paid up capital, turnover, borrowings and deposits. Applicable subject to paid up capital, turnover, borrowings and deposits. Applicable subject to paid up capital, turnover, borrowings and deposits. NA
Tax Audit Applicable in case of turnover exceeding Rs. 10 million. Non Compliance would result into a penalty @ 0.5 % of the total turnover or Rs. 0.1 million whichever is less. Applicable in case of turnover exceeding Rs. 10 million. Non Compliance would result into a penalty @ 0.5 % of the total turnover or Rs. 0.1 million whichever is less. Applicable in case of turnover exceeding Rs. 10 million. Non Compliance would result into a penalty @ 0.5 % of the total turnover or Rs. 0.1 million whichever is less. Applicable in case of turnover exceeding Rs. 10 million. Non Compliance would result into a penalty @ 0.5 % of the total turnover or Rs. 0.1 million whichever is less.
GST Audit Applicable in case of turnover exceeding Rs. 20 million. Applicable in case of turnover exceeding Rs. 20 million. Applicable in case of turnover exceeding Rs. 20 million. Applicable in case of turnover exceeding Rs. 20 million.
Transfer Pricing Applicable Applicable Applicable Applicable

Commencing business in India as LO / BO / WOS

Liaison Office (LO) Branch Office (BO) Wholly Owned Subsidiary (WOS)
Meaning
A Liaison Office [also known as representative office] can undertake only liaison activities i.e. it can act as a channel of communication between Head Office abroad and parties in India. It is not allowed to undertake any business activity in India and cannot have any income in India. Companies incorporated outside India are allowed to setup Branch Offices with specific approval from Reserve Bank of India. Normally, the Branch Office should be engaged in the activity of the Parent Company. An incorporated entity formed and registered under the Companies Act, 2013. It is a distinct legal entity, apart from its shareholders.
Constitution
  1. An extension of the Head Office
  2. It is a simple form of structure
  3. No separate legal standing of its own
  1. An extension of the Head Office
  2. It is a simple form of structure
  3. No separate legal standing of its own
  1. Company form of organization
  2. Separate legal entity
  3. Limited Liability
Permitted Activities
  1. Representing the parent company / group companies in India
  2. Promoting export / import from / to India
  3. Promoting technical / financial collaborations between parent / group companies and companies in India
  4. Acting as a communication channel between the parent company and Indian companies
  1. Export / import of goods
  2. Rendering professional or consultancy services
  3. Carrying out research work in which the parent company is engaged
  4. Promoting technical or financial collaborations between Indian companies and parent or overseas group company
  5. Representing the parent company in India and acting as buying / selling agent in India
  6. Rendering services in Information Technology and development of software in India
  7. Rendering technical support to the products supplied by parent / group companies
  8. Foreign airline / shipping company
 As per its ‘main objects’ stipulated in the Memorandum of Association subject to Foreign Direct Investment Policy stipulated by the Government of India.
Criteria for Set Up
  1. Parent company should have a profit making track record during the immediately preceding three financial years in the home country.
  2. Net Worth of the parent company not less than USD 50,000 or its equivalent.
  1. Parent company should have a profit making track record during the immediately preceding five financial years in the home country.
  2. Net Worth of the parent company not less than USD 100,000 or its equivalent.
 A private company is required to be incorporated with a minimum authorised & paid up capital and minimum two subscribers. No requirement of track record of parent company as shareholder.
General Terms of Approval
  1. Not to undertake any activity of a trading, commercial or industrial nature and not to enter into any business contracts in its own name without RBI’s prior permission.
  2. No commission / fees shall be charged or any other remuneration received / income earned by the office in India for the liaison activities / services rendered by it or otherwise in India.
  3. The entire expenses of the office in India will be met exclusively out of the funds received from head office through normal banking channels.
  4. The office in India shall not borrow or lend any money from/to any person in India without RBI’s prior permission.
  1. Not to expand its activities or undertake any new trading, commercial or industrial activity other than that is expressly approved by the RBI.
  2. The entire expenses in India will be met either out of the funds received from head office through normal banking channels or through income generated by it in India.
  3. The Branch Office will not accept any deposits in India.
  4. The commission earned by the Branch Office from parties abroad for any agency business will be repatriated to India through normal banking channels.
  5. Not to undertake any retail trading activity.
  6. A Branch Office is not allowed to carry out manufacturing or processing activities in India, directly or indirectly.

A private company is required to be incorporated with a minimum paid-up capital and minimum two subscribers.

Broadly, it:

  1. restricts the right to transfer its shares
  2. limits the number of its members (shareholders) to 200;
  3. prohibits any invitation to the public to subscribe for any of its shares or debentures; and;
  4. prohibits any invitation or acceptance of deposits from persons other than its members, directors or their relatives.

Note: The conditions will be different for Public Limited Companies.
Time limit of approval
Normally 3 years from the date of approval Normally 3 years from the date of approval Until the company decides to close down
Basic Registration

The following registrations / approvals will be required:

  1. PAN
  2. TAN
  3. GST
  4. Profession Tax
  5. Company Tax
  6. Import Export Code
  7. EPF
  8. ESI

The following registrations / approvals will be required:

  1. PAN
  2. TAN
  3. GST
  4. Profession Tax
  5. Company Tax
  6. Import Export Code
  7. EPF
  8. ESI

The following registrations / approvals will be required:

  1. PAN
  2. TAN
  3. GST
  4. Profession Tax
  5. Company Tax
  6. Import Export Code
  7. EPF
  8. ESI
  9. MSME Registration
Liabilities of parent company / Head office
Parent company’s liability is unlimited for all acts and omission of LO The liability of the Branch is unlimited. The assets of the parent company are at risk of attachment in case the liabilities of the branch exceeds its assets The liability of the parent company is limited to the extent of its shareholding in the WOS. The assets of the foreign company are not subject to any attachments.
Permitted Incomes
The entire expenses of the LO in India will be met out of the funds received from Head Office through normal banking channels. There will not be any income of the LO. The entire expenses of the BO in India will be met either out of the funds received from Head Office through normal banking channels or through income generated by it in India. All income arising out of its business activities.
Indian Income Tax
Since there is no income accrual, there is no income tax. LO is required to file information in Form 49C with the Income Tax Department. Since a branch office of a foreign company is taxed as a foreign company in India, it is taxed @ 40% plus surcharge plus cess Any Indian company is taxed @ 25% plus surcharge plus cess
Payment of Dividend to Parent
Cannot pay dividend. Dividend paid to parent is tax free Dividend can be paid after payment of dividend distribution tax @ 15% plus surcharge plus cess
Management
LO is managed by Authorized Representative, resident in India (Country Manager) BO is managed by Authorized Representative, resident in India (Country Manager) Minimum two directors (one local resident in India is mandatory)
Statutory Audit
Financials would be liable to Statutory Audit by a Chartered Accountant Financials would be liable to Statutory Audit by a Chartered Accountant Financials would be liable to Statutory Audit by a Chartered Accountant
Internal Audit
Not Applicable Not Applicable Applicable subject to paid up capital, turnover, borrowings and deposits.
Tax Audit
Not Applicable Applicable in case of turnover exceeding Rs. 10 million. Non Compliance would result into a penalty @ 0.5 % of the total turnover or Rs. 0.1 million whichever is less. Applicable in case of Turnover exceeding Rs. 10 million. Non Compliance would result into a penalty @ 0.5 % of the total turnover or Rs. 0.1 million whichever is less.
GST Audit
Not Applicable Applicable in case of turnover exceeding Rs. 20 million. Applicable in case of turnover exceeding Rs. 20 million.
Transfer Pricing
Not Applicable Applicable Applicable
Remittance of profit toparent company
None, except upon closure of LO Profits can be freely repatriated to the parent company subject to payment of applicable taxes.
  1. By way of dividend subject to dividend
  2. distribution tax
  3. By way of royalty / fees for technical services
  4. By way of management fees
  5. Related party transactions are subject to transfer pricing regulations
Borrowing
Not allowed The branch office is not allowed to borrow locally unless the prior approval of RBI is taken.
  1. There is no restriction on local borrowing.
  2. External Commercial Borrowings are subject to guidelines issued by the RBI.
Annual Compliance – a. Filing
  1. Yearly filing of annual accounts and annual returns with the Registrar of Companies
  2. Annual compliance with Reserve Bank of India
  3. Monthly and annual compliance with GST
  4. Monthly and annual compliance with Income Tax
  5. Monthly compliance with Employee Provident Fund
  6. Monthly compliance with Employee State Insurance
  1. Yearly filing of annual accounts and annual returns with the Registrar of Companies
  2. Annual compliance with Reserve Bank of India
  3. Monthly and annual compliance with GST
  4. Monthly and annual compliance with Income Tax
  5. Monthly compliance with Employee Provident Fund
  6. Monthly compliance with Employee State Insurance
  1. Yearly filing of annual accounts and annual returns with the Registrar of Companies.
  2. Annual compliance with Reserve Bank of India
  3. Monthly and annual compliance with GST
  4. Monthly and annual compliance with Income Tax
  5. Monthly compliance with Employee Provident Fund
  6. Monthly compliance with Employee State Insurance
Annual Compliance – b. Meeting
Not applicable Not applicable Board – One meeting per quarterShareholder -One meeting per year

* Incorporation of a company in India is subject to sectoral caps and requisite approvals
**RBI guidelines regarding the establishment of LO / BO / PO. As per Indian Companies Act 2013, only a resident Indian with PAN to be appointed for receiving notices in India for foreign company.
***For FDI-linked performance conditions, please refer Consolidated FDI Policy.

Resident Director

As per 149(3) of the Indian Companies Act, 2013, every company shall have at least one director who has stayed in India for a total period of not less than 182 days in the previous calendar year.

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