- Foreign investors planning to open a branch in India are required to seek governmental approval before investing in India. Some approvals are although automatic inspite of that necessary application is required for such approvals. Special Permission could be obtained to invest over and above the regular percentage as prescribed under Annexure B of chapter 10 of Foreign Exchange Management Act 1999. The Reserve Bank of India and FIBP are monitoring & Regulatory Authority in this regard.
BRANCH OFFICE
Foreign companies are allowed to set up branch office in India for the purpose of following activities :
- export/import of goods
- rendering professional or consultancy services
- R&D, promoting technical or financial collaborations,
- representing the parent company, acting as buying/selling agents
- rendering services in IT and development of software
- rendering technical support to the products supplied by the parent/group companies foreign airline/shipping companies.
Such branch offices could be established with the approval of the government of India and may remit outside India profit of the branch, subject to applicable Indian Rules & Regulation.
LIAISON OFFICE/REPRESENTATIVE OFFICE
A Liaison Office could be established with the prior approval of appropriate Government Authorities as prescribed under the prevailing Indian Rules & Regulations. The Liaison Office can undertake the activities which are confined to collection of information, promotion of exports/imports and facilitate technical/financial collaborations. However, it cannot undertake any commercial activity in any manner.
PROJECT OFFICE
Foreign Companies planning to execute specific projects in India can set up a temporary project/site offices in India for carrying out activities only relating to the project for which it has setup project office. The Government of India has now granted general permission to foreign entities to establish project offices subject to terms & conditions.
LIMITED LIABILITY PARTNERSHIP (LLP)
It is a new phenomenon in Indian context. The Parliament of India has enacted (Limited Liability Partnership (LLP) Act of 2008). Therefore, now the Indian laws permits to Incorporate LLP. It shall be a body corporate and a legal entity separate from its partners. It will have perpetual succession. The liability of the partners would be limited to their agreed contribution in the LLP. Further, no partner would be liable on account of the independent or unauthorized actions of other partners, thus allowing individual partners to be shielded from joint liability created by another partner’s wrongful business decisions or misconduct. LLP is an alternative corporate business module that provides the benefits of limited liability of a Company but allows its members the flexibility of organizing their internal management on the basis of a mutually-arrived agreement, as is the case in a partnership firm.
This module is recommendable for small and medium enterprises in general and for the enterprises in services sector in particular.
JOINT VENTURE COMPANY
Joint Venture Companies are the most preferred module of corporate entities for Doing Business in India to achieve specific objectives of a partnership like temporary arrangement between two or more firms. JVs are advantageous as a risk reducing mechanism in new-market penetration, and in pooling of resource for large projects. The Company incorporated in India, even up to 100% foreign equity, are at par at domestic companies. A Joint Venture may be any of the business modules available. There are no separate laws for joint ventures in India. They, however, present unique problems in equity ownership, operational control, and distribution of profits (or losses).
SUBSIDIARY COMPANY
A subsidiary, in business matters, is an entity that is controlled by a separate entity. The controlled entity is called a company, corporation, or limited liability company and in some cases can be a government or state-owned enterprise, and the controlling entity is called its parent (or the parent company). The reason for this distinction is that a lone company cannot be a subsidiary of any organization; only an entity representing a legal fiction as a separate entity can be a subsidiary. While individuals have the capacity to act on their own initiative, a business entity can only act through its directors, officers and employees.
Note that contrary to popular belief, a parent company does not have to be the larger or “more powerful” entity; it is possible for the parent company to be smaller than a subsidiary, or the parent may be larger than some or all of its subsidiaries (if it has more than one). The parent and the subsidiary do not necessarily have to operate in the same locations, or operate the same businesses, but it is also possible that they could conceivably be competitors in the marketplace. Also, because a parent company and a subsidiary are separate entities, it is entirely possible for one of them to be involved in legal proceedings, bankruptcy, tax delinquency, indictment and/or under investigation, while the other is not.
The most common way that control of a subsidiary is achieved is through the ownership of shares in the subsidiary by the parent. These shares give the parent the necessary votes to determine the composition of the board of the subsidiary and so exercise control. This gives rise to the common presumption that 50% plus one share is enough to create a subsidiary. There are, however, other ways that control can come about and the exact rules both as to what control is needed and how it is achieved can be complex.
Subsidiaries are separate, distinct legal entities for the purposes of taxation and regulation. For this reason, they differ from divisions, which are businesses fully integrated within the main company, and not legally or otherwise distinct from it. Subsidiaries are a common feature of business life and most if not all major businesses organize their operations in this way over the world.