India being one of the 7th largest and 2nd most populous country in the world also has the 4th largest economy which is upcoming. Over the past 10 years a series of ambitious economic reforms coupled with a stable government has aimed at deregulating India’s economy and stimulating foreign investment has moved India firmly into one of the most sought after locations in the rapidly growing Asian Sub- Continent and unleashed the latent strength of a complex and rapidly changing nation.

Today India is one of the most exciting emerging markets in the world nearly in each and every sphere, be in automobile, pharma, retail, industrial etc. Skilled Senior and Junior managerial and technical manpower that matches the best available in the world and a middle class whose size exceeds the population of the USA or the European Union, provide India with a distinct cutting edge in global competition.

India INC offer foreign investors a transparent and conducive environment that gives them returns and also in turn promises consistent returns over their investments. The Indian Democratic political system includes a free and vibrant press, a well established judiciary, a sophisticated legal and accounting system and a user friendly intellectual infrastructure. India also has its own share of red tapes and the long drawn processes for entering and setting up the Companies etc. but yes once you are done the going is smooth thereafter.

The emerging India’s with the economy growing at a healthy pace has a dynamic and highly competitive private sector which has long been the backbone of its economic activity and offers considerable scope for foreign direct investment, joint ventures and collaborations.

A brief on the Foreign Direct Investment Policy:

Foreign Direct Investment in India is allowed on automatic route in almost all sectors except

• Proposals that require an industrial licence and cases where foreign investment is more than 24% in the equity capital of units manufacturing items reserved for the small scale industries.
• Proposals in which the foreign collaborator has a previous venture/tie-up in India.
• Proposals relating to acquisition of shares in an existing Indian company in favour of a Foreign/Non-Resident Indian (NRI)/Overseas Corporate Body (OCB) investor; and
• Proposals falling outside notified sectoral policy/caps or under sectors in which FDI is not permitted and/or whenever any investor chooses to make an application to the Foreign Investment Promotion Board and not to avail of the automatic route.

Foreign Investment Promotion Board (FIPB) is a competent body to consider and recommend foreign direct investment (FDI), which do not come under the automatic route.

Setting Up a Company In India

• Foreign nationals (except citizens of Nepal and Bhutan) entering into India are required to carry a valid passport/travel documents and a valid visa. Visas for the purpose of tourism, entry, transit, conferences, business and employment in India re issued to foreign nationals by Indian Embassies and Consulates abroad.
• Business visas may be issued for upto 5 years, with multiple entry provision. While a business visa is issued by an Indian Embassy abroad, it can be renewed/extended within India if the applicant so desires. Foreign nationals who wish to work in India must obtain a Residential Permit from the Foreigners Regional Registration Office (FRRO) that are located in all major cities, or, in the case of smaller cities, from the principal police station.
• A foreign national, holding a visa (other than a tourist visa) valid for a period exceeding 180 days, is required to be registered with the FRRO within 15 days of arrival in India. Change of purpose or type of visa is a not permitted. Further, visa other than employment, student and entry are normally not considered for extension.
• The transfer of residence scheme applies to foreign nationals visiting India for long durations. Under this scheme, foreign nationals can import certain personal effects without paying customs duty. A bank guarantee has to be provided for this purpose, which is returnable after the individual has stayed in India for a year. To avail of this scheme, the goods have to be shipped within two months before the entry into India or one month after entry into India. The goods brought into India under the transfer of residence scheme have to be owned by the importer or his family for at least one year.

The principal forms of business organisation in India are:

• Companies – both public and private
• Partnerships
• Sole proprietorships

Companies incorporated in India and branches of foreign corporations are regulated by the Companies Act, 1956 (the Act). The Act, which has been enacted to oversee the functioning of companies in India, draws heavily from the United Kingdom’s Companies Acts and although similar, is more comprehensive. The Registrar of Companies (ROC) and the Company Law Board (CLB), both working under the Department of Company Affairs, ensure compliance with the Act.

Types of Companies

A company can be a public or a private company and could have limited or unlimited liability. A company can be limited by shares or by guarantee. In the former, the personal liability of members is limited to the amount unpaid on their shares while in the latter, the personal liability is limited by a pre-decided nominated amount. For a company with unlimited liability, the liability of its members is unlimited.

Apart from statutory government owned concerns, the most prevalent form of large business enterprises is a company incorporated with limited liability. Companies limited by guarantee and unlimited companies are relatively uncommon.

• Private Companies

  A private company incorporated under the Act has the following characteristics:
  • The right to transfer shares is restricted.
  • The maximum number of its shareholders is limited to 50 (excluding employees).
  • No offer can be made to the public to subscribe to its shares and debentures.
  • Private companies are relatively less regulated than public companies as they deal with the relatively smaller amounts of public money. A private company is deemed to be a public company in the following situations:
  • When 25 percent or more of the private company’s paid-up capital is held by one or more public company.
  • The private company holds 25 percent or more of the paid-up share capital of a public company.
  • The private company accepts or renews deposits from the public.
  • The private company’s average annual turnover exceeds Rs. 250 million during a period of 3 consecutive financial years.

• Public Companies

  A public company is defined as one which is not a private company. In other words, a public company is one on which the above restrictions do not apply. Regarding the necessary procedures to be followed for registering the company, a flow chart presents the summary of the steps involved in formation of a company with Registrar of Companies.

• Foreign Companies

  Foreign investors can enter into the business in India either as a foreign company in the form of a liaison office/representative office, a project office and a branch office by registering themselves with Registrar of Companies (ROC), New Delhi within 30 days of setting up a place of business in India or as an Indian company in the form of a Joint Venture and wholly owned subsidiary. For opening of the foreign company specific approval of Reserve Bank of India is also required and compliance of all local laws is mandatory.
  
  Foreign nationals working in India are generally taxed only on their Indian income. Income received from sources outside India is not taxable unless it is received in India. Foreign nationals have the option of being taxed under the tax treaties that India may have signed with their country of residence.
  
  Remuneration for work done in India is taxable irrespective of the place of receipt. Remuneration includes salaries and wages, pensions, fees, commissions, profits in lieu of or in addition to salary, advance salary and perquisites. Taxable payments include all allowances and tax equalization payments unless specifically excluded. The stock options granted by the employer are taxable as capital gains at the time of sale of shares acquired due to exercise of options.