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The Companies Act of 1956 sets down rules for the establishment of both public and private companies. The most commonly used corporate form is the limited company, unlimited companies being relatively uncommon. A company is formed by registering the Memorandum and Articles of Association with the State Registrar of Companies of the state in which the main office is to be located.
Foreign companies engaged in manufacturing and trading activities abroad are permitted by the Reserve Bank of India to open branch offices in India for the purpose of carrying on the following activities in India.
- to represent the parent company or other foreign companies in various matters in India, for example, acting as buying/selling agents in India, etc.
- to conduct research work in which the parent company is engaged provided the results of the research work are made available to Indian companies.
- to undertake export and import trading activities.
- to promote possible technical and financial collaboration between Indian companies and overseas companies.
Application for permission to open a branch, a project office or liaison office is made via the Reserve Bank of India by submitting Form FNC-5 to the Controller, Foreign Investment and Technology Transfer Section of the Reserve Bank of India. For opening a project or site office, application may be made on Form FNC-10 to the regional offices of the Reserve Bank of India.
A foreign investor need not have a local partner, whether or not the foreigner wants to hold full equity of the company. The portion of the equity thus not held by the foreign investor can be offered to the public.
PROVISIONS UNDER THE FOREIGN EXCHANGE MANAGEMENT ACT
Incorporation of Company:
For registration and incorporation, an application has to be filed with Registrar of Companies (ROC). Once a company has been duly registered and incorporated as an Indian company, it is subject to Indian laws and regulations as applicable to other domestic Indian companies.
For details please visit the website of Department of Company Affairs under Ministry of Finance at
http://dca.nic.in/
As a Foreign Company:
Foreign Companies can set up their operations in India through
- Liaison Office/Representative Office
- Project Office
- Branch Office
Such offices can undertake any permitted activities. Companies have to register themselves with Registrar of Companies (ROC) within 30 days of setting up a place of business in India.
Liaison Office/Representative Office:
Liaison office acts as a channel of communication between the principal place of business or head office and entities in India. Liaison office can not undertake any commercial activity directly or indirectly and can not, therefore, earn any income in India. Its role is limited to collecting information about possible market opportunities and providing information about the company and its products to prospective Indian customers. It can promote export/import from/to India and also facilitate technical/financial collaboration between parent company and companies in India.
Approval for establishing a liaison office in India is granted by Reserve Bank of India (RBI).
Project Office:
Foreign Companies planning to execute specific projects in India can set up temporary project/site offices in India. RBI has now granted general permission to foreign entities to establish Project Offices subject to specified conditions. Such offices can not undertake or carry on any activity other than the activity relating and incidental to execution of the project. Project Offices may remit outside India the surplus of the project on its completion, general permission for which has been granted by the RBI.
Branch Office:
Foreign companies engaged in manufacturing and trading activities abroad are allowed to set up Branch Offices in India for the following purposes:
- Export/Import of goods.
- Rendering professional or consultancy services.
- Carrying out research work, in which the parent company is engaged.
- Promoting technical or financial collaborations between Indian companies and parent or overseas group company.
- Representing the parent company in India and acting as buying/selling agents in India.
- Rendering services in Information Technology and development of software in India.
- Rendering technical support to the products supplied by the parent/ group companies.
- Foreign airline/shipping company.
A branch office is not allowed to carry out manufacturing activities on its own but is permitted to subcontract these to an Indian manufacturer. Branch Offices established with the approval of RBI, may remit outside India profit of the branch, net of applicable Indian taxes and subject to RBI guidelines Permission for setting up branch offices is granted by the Reserve Bank of India (RBI).
Branch Office on “Stand Alone Basis":
Such Branch Offices would be isolated and restricted to the Special Economic zone (SEZ) alone and no business activity/transaction will be allowed outside the SEZs in India, which include branches/subsidiaries of its parent office in India.
No approval shall be necessary from RBI for a company to establish a branch/unit in SEZs to undertake manufacturing and service activities subject to specified conditions.
Application for setting up Liaison Office/ Project Office/ Branch Office may be submitted in form FNC 1 (available at RBI website at
http://www.rbi.org.in/)
Foreign Direct Investment (FDI) Policy:
FDI under automatic route is now allowed in all sectors, including the services sector, except a few sectors where the existing and notified sectoral policy does not permit FDI beyond a ceiling.
Automatic Route:
No prior approval is required for FDI under the Automatic Route. Only information to the RBI within 30days of inward remittances or issue of shares to Non Residents is required. RBI has prescribed a new form, Form FC-GPR (instead of earlier FC-RBI) for reporting shares issued to the Foreign Investors by an Indian company.
Government Approval:
Foreign Investment proposed not covered under the ‘Automatic Route’ are considered for Governmental Approval on the recommendations of the Foreign Investment Promotion Board
(FIPB).
Foreign Investors:
Application for such cases are to be submitted in FC/IL form or on plain paper to Foreign Investment Promotion Board (FIPB) in Department of Economic Affairs, Ministry of Finance, Government of India North Block, New Delhi 110 001.
Non Resident Indians:
Non Resident Indians are required to submit their proposals to the Secretariat for Industrial Assistance (SIA)
department of Industrial Policy and Promotion, Government of India for consideration of
FIPB.
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