Thanks to a’important demographic and economic growth, India is confirming itself as a country of extreme interest for Italian exports. For this reason, more and more companies are asking themselves. as setting up a company in India, aiming to expand its business in a nation that ranks fifth among world economies.
The numbers in this regard speak for themselves: in the second quarter of the 2023 the Indian GDP grew by 7.6%, registering a +6.3% over the previous year.
A trend that confirms the many investment opportunities for Made in Italy in the Asian country.
In recent years, the Indian government has committed itself to optimize all those necessary procedures for open a branch in the nation, not only by simplifying regulations but also by investing in digitization. This has positively affected the growth of the’export to India, and today Italy emerges as the third largest exporter in the EU after Germany and France.
In reference to how to start a company in India, the first consideration is which corporate model to adopt.
There are several corporate models to choose from, all governed by the Reserve Bank of India (RBI) in accordance with the Registrar of Companies.
This is one of the most widely used forms in India. Here corporate assets are separated from personal assets. Each shareholder is responsible only for his or her share of the total capital. Limited liability companies must keep records of financial transactions, board meetings, annual reports, and so on. A Pvt Ltd company consists of a group of shareholders, and the total capital of the entity consists of shares. These shares can be sold/transferred to another individual who then also becomes one of the owners of the company.
A sole proprietorship is a form of business entity in which a single individual manages the entire organization corporate. It is the sole recipient of all profits and bearer of all losses. There is no separate law governing sole proprietorship.
Partnership is “the relationship between persons who have agreed to share the profits of the business carried on by all or any of them acting for all.” It is governed by the Indian Partnership Act 1932 and operates under a partnership agreement between the partners.
It is a combination of a partnership and a corporation. It is a separate legal entity and the partners' liability is limited to the amount of their contribution. But LLP cannot issue shares. Capital can be increased only in the form of additional contributions from existing partners or through the addition of new partners. The operations and profit/loss ratio of the partners are governed by the LLP agreement between the partners drafted in accordance with relevant laws. Unlike a simple partnership, it can apply for registration with India's Ministry of Corporate Affairs so as to formalize its presence on the ground.
If a company intent on export to India does not want to be present in India with a local company then it can consider these three forms of managing its activities.
The term “Liaison Office” (LO) is used in the Asian country to refer to a representative office. The latter acts as a conduit between the resident company in Italy and market stakeholders in India, promoting business contacts without being able to make profits directly. For this reason, an LO is not required to pay taxes on profits.
A Branch Office (BO) does not represent a separate company but is a subsidiary of the company for all purposes. Unlike the Liaison Office it can carry out import/export business operations, but in general it cannot carry out production activities directly. If the Branch Office is located outside one of these areas, it will be necessary to outsource these activities to an on-site manufacturer. In any case, this corporate model is subject to taxation.
A Project Office is likened to a Branch Office, with the diversity that its operations concern the implementation of a specific project in the territory. The latter may involve activities that are funded by international or Indian institutions, or construction work in the country.
The choice On which corporate model is best for opening a company in India is determined by several factors, including the company's business model and the type of strategy it wants to adopt to penetrate the country's economy.
Opening a limited liability company may be most appropriate for those companies that intend to approach the market in a firm and stable manner, while a branch office is the most suitable solution for companies that want to market their products with limited investment.
In any case, it is recommended to request a consulting that delves into the needs of the enterprise, to identify not only the corporate form to be adopted but also a strategy that can make the company achieve its goals.
If you are wondering how to set up a company in India, contact Octagona. Our professionals who specialize in internationalization will be able to give you all the information you want and evaluate the best options.
In India, the main forms are the Private Limited Company (Pvt Ltd), the Proprietorship (individual partnership), the Partnership firm and the Limited Liability Partnership (LLP). They are all regulated by the Reserve Bank of India in accordance with the Registrar of Companies. The choice depends on the business model and the market entry strategy.
The Private Limited Company (Pvt Ltd) is one of the most commonly used corporate forms in India and separates the company's assets from personal ones. Each shareholder is only liable for their share of the total capital. Shares can be sold or transferred to another entity, who becomes the owner. The company must maintain financial records, board minutes, and annual reports.
The Limited Liability Partnership (LLP) is a separate legal entity, where the liability of the partners is limited to their contribution, while the simple partnership is governed by the Indian Partnership Act 1932. The LLP cannot issue shares and increases the capital only with contributions from the partners or new partners. It can apply for registration with the Ministry of Corporate Affairs.
Yes, a company can operate in India without a local company through three structures: the Liaison Office, the Branch Office, and the Project Office. The Liaison Office is a representative office that promotes contacts without generating profits. The Branch Office is a subsidiary that can carry out import/export activities. The Project Office is linked to a specific project in the territory.
The Liaison Office is a representative office that acts as a liaison with Indian counterparts but cannot directly generate profits; therefore it does not pay taxes on profits. The Branch Office is an official branch of the company, can carry out import/export trade operations, and generally cannot directly generate profits; it is subject to taxes.
To market products in India with limited investment, the most suitable solution is the Branch Office. Those who want to approach the market in a decisive and stable way can consider a limited liability company. Since the choice depends on the business model and strategy, specialized advice is recommended to assess the company’s needs.
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