Foreign investors can set up business
in India in the following formats:
Wholly Owned Subsidiary Company
A foreign company may incorporate its wholly
owned subsidiary ('WOS') in India, in the segments where 100
per cent FDI is permitted. A WOS incorporated as a private
company, is treated as a private company for the purpose of
the Act, even though the foreign holding company is a public
company under the law of its country. It is regulated under
the Companies Act, 1956.
Status of Branch Office in India is that of Person Resident
in India. Foreign companies engaged in manufacturing and trading
activities abroad may open branch offices for the purpose
- Undertaking export and import of goods;
- Rendering professional or consultancy services;
- Carrying out research work in which the parent company
- Promoting technical and financial collaborations between
Indian companies and parent company or overseas group companies;
- Representing the parent company in India and acting as
buying and selling agents;
- Rendering services in information technology and development
of software in India;
- Rendering technical support to the products supplied by
parent/group companies; and
- Foreign airline /shipping company.
There is a general permission given to carry out any or all
of the above activities once the permission from Reserve Bank
of India (RBI) is received to set up a Branch office in India.
However if the Branch has to carry out any activity other
than the activities specified above, it has to take specific
permission from RBI for each such activity.
The project office is the ideal method for
companies to establish a business presence in India, if the
objective is to have a presence for a limited period of time.
It is essentially a branch office set up with the limited
purpose of executing a specific project.
'Project Office' means a place of business
to represent the interests of the foreign company executing
a project in India but excludes a Liaison Office. 'Site Office'
means a sub-office of the Project Office established at the
site of a project but does not include a Liaison Office. Foreign
companies engaged in turnkey construction or installation
normally set up a project office for their operations in India.
The Government of India has now granted general permission
to foreign entities to establish project offices subject to
A Liaison Office is only allowed to do what
its name suggests – act as an intermediary between the foreign
enterprise and the Indian customers. It cannot do any other
commercial activity with the objective to earn a profit. It
can neither borrow nor lend money. It is required maintaining
itself out of inward remittance received from parent company
through normal banking channels.
Following are the permitted activities for a
- Representing in India the parent company / group companies
- Promoting export/ import from /to India
- Promoting technical/financial collaboration between parent
/ group companies and companies in India.
- Acting as a communication channel between the parent company
and Indian companies
Any foreign company intending to open a
Liaison Office in India is required to obtain prior approval
from the RBI. Approval is usually granted for one to three
years and can be renewed on expiry thereof.
These companies may be established
in the following ways:
- Incorporating a company in collaboration with an Indian
partner (such companies are predominantly private companies).
- Incorporating a company in collaboration with the general
Indian public by way of a publicly listed company.
When the foreign contribution is in the
form capital participation, the usual form of the venture
is joint venture. The Indian experience shows that the most
preferred mode for forming a joint venture is to set up a
private company because under the Indian company law a private
company, unlike a public company, is exempted from lot of
legal compliance and statutory filings. Due care should be
taken while forming JVC with respect to the controlling interests
and rights of the foreign and Indian participants.
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