Doing Business in India

There are two major ways of doing business in India i.e. forming entity in India or through contractual agreement or sales office.

Choosing the right market entry strategy for India requires careful consideration of the needs, capacities and format of each particular business. Whether you choose to set up a subsidiary, a liaison office or a joint venture, there are several options available, each with different implications and advantages.

The following flowchart outlines the legal business structures you can set up in India:-

Contractual arrangementSimplest method of establishing a clear relationship between a company (Co) and an Indian partner (e.g. Co appoints Indian partner as a distributor in India).
  • No separate legal entity so setting up does not involve procedural formalities, which can be lengthy for separate entities such as a company.
  • Compared to other structures, requires less ongoing administration such as statutory filings.
  • Set-up costs will be the costs for negotiating and concluding contract.
  • Privacy of arrangements.
  • Co may be exposed to unlimited claims and liabilities in India due to its own actions and those of Indian partner. Ensure you seek Indian contractual advice.
  • Taxation is simpler but there are no tax advantages linked to a contractual arrangement.
  • Need to ensure no partnership formed.
  • Success in India is dependent upon a third party
  • Contractual documents need to be carefully drafted to minimise risks of Co having a permanent establishment in India and ensuring Co IP is protected.
Sole proprietorship concern/ PartnershipThough a contractual relationship, substantively different from contractual relationships described above. Governed by Partnership Act 1932.
  • Control and privacy for business partners.
  • Simple to set up and no formal administrative burdens.
  • Potential to gain from business presence of Indian partner.
  • Practical difficulties for FDI, sectoral and banking restrictions for non-Indians.
  • No separate entity and unlimited joint and several liability risk between partners.
  • Many businesses/ individuals may already be doing business this way without formal recognition.
Branch officeAn extension of existing set up in India, which can undertake some but not all of the same activities as Co. The scope of its permitted activities will be determined by the permission that is granted by the Reserve Bank of India (RBI).
  • Can perform some revenue generating activities in India, unlike a liaison office (see below).
  • It is a separate legal entity for certain purposes.
  • Co may be exposed to unlimited claims and liabilities in India owing to branch office operations.
  • Restrictions on range of activities, which are subject to RBI approvals.
  • Formalities and legal set-up costs are involved.
  • Several airline and shipping companies have established Indian branch offices.
  • Tax structuring possible as branch office is taxed separately in India. The rate of tax is higher than the rates applicable to companies.
Liaison officeSet up primarily to give an India face to Co and for marketing purposes.
  • Fewer ongoing formalities although there are set-up costs.
  • No separate legal entity but does provide a formal presence for Co in India.
  • Cannot trade or generate revenue in India.
  • Co may be exposed to claims and liabilities in India.
  • Must be funded by Co only
  • Minimum period of profitability and net worth requirement.
Project officeSet up primarily if the Co has a secured contract from an Indian company to execute a project in India.
  • Prior RBI approval not required if certain conditions are fulfilled.
  • A project office is permitted to operate a bank account in India and may remit surplus revenue from the project to the Co.
  • The activities of a project office must be related to or incidental to the execution of the relevant project.
  • Project offices are generally preferred by companies engaged in one-time turnkey or installation projects.