India has always attracted the entry of foreign companies due to the fast growth of the market. However, several companies keep aside their plans of business setup in India primarily due to the formalities of registration. The presumption that they may face trouble during the completion of paperwork keeps them away from the attractive business opportunities. Several steps have been taken during the recent years to ease the problems of registering as a company in India. There are multiple ways in which a foreign company can do business in this country whether registering as an Indian company or choosing to do business as a foreign company. The following points highlight some of the opportunities of doing business in India.
Limited Liability Company or LLC
While setting up LLP in India, the primary aspect you need to know is that it is a corporate entity that is legally distinctive than the shareholders and the members. It requires two shareholders and foreign companies for holding a major chunk of the shares. The LLP companies can hire employees, own property, and can be sued. Apart from this, its existence does not rely on the status of the members and the shareholders, meaning that it has unlimited opportunities of existence and it can also borrow money. The establishment of an LLP provides a strong presence and the highest control to the foreign entities looking forward to doing business in this country.
The incorporation of a private company is the fastest and the simplest way of setting business in India as a foreign company. Furthermore, the private companies are entitled to more exemptions than the rest of business entities. Therefore, a majority of the foreign businesses who prefer to expand their business in India want to own a private limited company functioning as its subsidiary. For the registration of a private limited company, the formalities are to be carried out under the MCA and it takes about fifteen days for the procedure to complete. Two shareholders and directors are required for the registration. According to the laws of the country, there is no need for paid up capital while registering as a private limited company.
Restriction of activities
The LLC’s setting up business in India are barred from carrying out the following activities in India.
- The companies are not to engage in lottery business whether private, government, or online lotteries.
- They should stay away from initiating chit funds.
- Involving in betting and casinos is not permitted.
- Trading in the transferable Development Rights is also prohibited for the limited liability companies.
- When it comes to the construction of farm houses or real estate business, it must not include the development of townships, construction of commercial and residential premises, bridges or roads, and the REIT’s that are regulated and registered under the SEBI.
- Some sectors and activities are not open to private sector investment such as Atomic Energy.
- Manufacturing tobacco or its substitutes is also not permitted under the law.
Incomes and expatriates
All kinds of income arising out of the business in India is considered as the earning of the company and the expatriates are allowed to work on the payroll of the LLC.
The remittance of the LLC comes through the dividends, fees towards the technical knowledge, the royalties, and the remittances under the supply contract.
Taxes in India for LLC
As the LLC does business in India, it has to pay corporate tax and the companies wanting to operate as LLC’s must inquire about the tax structure to know the rates that are applicable. Apart from this, it is also necessary to file IT return in India and pay the Dividend Distribution Tax.
Limited Liability Partnership or LLP
As far as the LLP is concerned, it is an entity between a limited company and the partnership firms. Furthermore, it is a separate legal entity when compared with the members, which means that the liability of the members is restricted to their agreed contributions. A foreign company can plan its India entry strategy and establish the LLP only in those sectors where the RBI provides the opportunity of hundred percent foreign direct investment.
After setting up LLP in India, a foreign company can own properties, remit its earnings outside the country, and generate revenue. The LLPs are taxed at a rate of thirty percent and pay the additional surcharge of twelve percent to the LLP’s when the income exceeds one crore.
Choosing the right option
Even though there are numerous opportunities of doing business in India, the prospective foreign companies must look into these options carefully. Some of the other business options for the foreign companies include joint ventures, setting up project or branch office, or a liaison office. The rules and regulations governing these businesses are going to differ, so the companies need to analyze them as well.
Deciding whether to set up an office, company, or a firm in India must relate to the size, ambitions, and the projected goals of the company to a great extent. While a liaison office is the best option for small company looking forward to explore good business prospects in this country, the limited liability company is a good option for expanding in the Asian subcontinent. While you need to make a logical decision based on various factors, it is essential to review the latest laws and regulations, carry out a due diligence of the partners and the service providers, and plan an effective exit strategy with the help of a professional business advisor for doing business in this country.