Company Incorporation
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Sole Proprietorship firms
A Sole Proprietorship is owned and controlled by one person. It requires opening a current bank account and registering under applicable laws, including GST. This simple and low-cost business form offers minimal compliance but carries unlimited liability.
Key Points:
- 100% ownership
- Fastest and easiest to established
- Unlimited liability
- Lack legal form of establishment
- Unsuitable for transfer of ownership
- Low cost of incorporation
Partnership Firms
A Partnership Firm is formed by two or more partners who share profits. Governed by a partnership agreement, it is a popular business form in India. The firm’s income is taxed at a maximum rate of 30% plus cess and surcharge.
Key Points:
- Formed with 2 or more partner
- Ownership is divided amongst partner
- Fastest and easiest to established
- Unlimited liability (unless registered)
- Lack separate legal entity
- Unsuitable for transfer of ownership
- Low cost of incorporation
- Higher tax rate
Limited Liability Partnership
An LLP combines elements of partnerships and corporations, offering limited liability to partners. Governed by the Ministry of Corporate Affairs, it requires compliance with the LLP Act and related rules. LLP income is taxed at a maximum rate of 30% plus cess and surcharge.
Key Points:
- Formed with 2 or more partner
- Ownership is divided amongst partner
- Limited liability of partners
- Separate legal entity
- Unsuitable for transferability of ownership share
- Higher tax rate
Private or Public Limited Company
Members of a limited company have liability limited to their investment. Private companies have restricted membership, while public companies can sell shares to the public. Incorporation involves significant paperwork and compliance with the Companies Act.
Key Points:
- Formed with 2 or more director and shareholder
- Ownership is controlled through shareholding
- Limited liability of shareholder
- Separate legal entity
- Suitable for transferability of ownership in shares
- Lower tax rates
A Foreign company or foreign investor can set-up business operations in India by following ways:
1. As Indian company - Wholly owned subsidiary Company
Wholly Owned Subsidiary Company
Foreign companies can invest 100% FDI through an automatic route, making it the easiest and fastest entry strategy.
Key Points:
- 100% foreign ownership allowed
- Requires minimum two shareholders and two directors
- FC-GPR filing necessary for FDI compliance
2. Joint Venture
Foreign investors can form a joint venture with an Indian partner, requiring approval from RBI or FIPB.
Key Points:
- Governmental approval needed
- Governed by a Memorandum of Understanding
- Shared ownership and management with JV partner
3. Setting up a Liaison Office or Representative Office
Set up for communication and promotion between parent company and Indian businesses, requiring RBI approval.
Key Points:
- Requires prior RBI approval and PAN application
- No business activities or income generation in India
- Funded entirely by foreign exchange remittances
It can undertake following activities:
- Representing parent company in India
- Promoting import/export in India
- Promoting technical/financial collaborations on parent company behalf
4. Project Office
Established to execute specific projects in India without prior RBI approval if certain funding conditions are met.
- It is funded directly by inward remittance from abroad or
- It is funded by a bilateral or multilateral International Financing Agency or has been cleared by an appropriate authority or
- A company or entity in India providing the contract has been granted Term Loan by a Public Financial Institution or a bank in India for the project
Key Points:
- Based on a contract with an Indian company
- Owner's liability is unlimited
- Can undertake business activities and earn income in India
5. Branch Office of the Foreign Company
Foreign companies can open branch offices with RBI approval, requiring profitability and net worth criteria.
It can undertake following activities:
- Import & Export of goods.
- Providing professional or consultancy services.
- Carrying out research work in area that their parent company is engaged in.
- Promoting technical/financial collaborations on behalf of the parent
- The representing parent company in India and acting as buying/selling agent in India.
- Providing IT services and developing software in India.
- Providing technical support for products supplied by the parent
- Foreign Airline / Shipping Company.
Key Points:
- Require prior approval from RBI and need to apply for PAN
- Owner’s liability is unlimited and are fully responsible for affairs of the Indian office
- It can undertake specified business activity and earn income in India.
