Foreign companies can set up wholly-owned subsidiary in sectors where 100% foreign direct investment is permitted under the FDI policy. The wholly-owned subsidiary may be either of the following business modules:

1. Private Limited Company
2. Public Limited Company
3. Sole Proprietorship

Foreign Companies can also set up their operations in India through the business modules:

1. Liaison Office/Representative Office
2. Project Office
3. Branch Office

Such offices can undertake any permitted activities. The following business activities are prohibited.

The Company has to register itself with Registrar of Companies (ROC) of respective states where the registered office of the company is likely to be situated, within 30 days of setting up a place of business in India.

PRIVATE LIMITED COMPANY AS A SUBSIDIARY

A private limited company has the following features:
Number of shareholders is limited to fifty excluding its present & past employees;
Shareholders’ right to transfer shares is restricted; and
Prohibition on invitation to the public to subscribe for any shares in or debentures of the company.
Prohibits any invitation or acceptance of deposit from persons other than its members, directors or their relatives.

PUBLIC LIMITED COMPANY AS A SUBSIDIARY

A Public Limited company has the following features:
It must have at least seven members.
A public company is not authorized commence business immediately on receipt of Incorporation certificate. In order to be eligible to commence business as a as a corporate body, it must obtain another certificate called “Certificate of Commencement of Business “.
It must publish a prospectus or file a statement in lieu of a prospectus before it can start transacting business.
A public company is required to have at least three directors.
It must hold statutory meetings within a period of not less than 1 month nor more than 6 months from the date at which the company is entitled to commence business.

There are several other provisions contained in the Companies Act 1956 which are applicable only to a public limited company those are relevant for day to day operation of the company.

Selection of right kind of business module depends upon so many factors. It is always advisable to consult a Chartered Accountants firm well versed in law before taking final decision in this regard as the matter has to be viewed from various angles which includes the applicability of the provisions contained under the Companies Act, 1956, Foreign Exchange Management Act, 2000 (FEMA), Income Tax Act, 1961 other applicable Indian Rules & Regulation of Reserve Bank of India and Ministry of Commerce & Industry.

It is also mandatory for Non resident investors or non resident shareholders to seek Government Approvals for Investing in India . The Govt. policy in the last couple of years has changed drastically in this regard. Foreign Investment Promotion Board (FIPB) & Reserve Bank of India (RBI) are the principle Monitoring & Regulatory Authorities in this regard. It should be inconformity with the sectoral cap on investment by person resident outside India under Chapter X of FEMA (Annexure B). Further Annexure A of the same chapter prescribed the activities which are prohibited or restricted.