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 as set up a company in India, with the goal of expanding its business in a nation that ranks fifth among the world's economies.
The numbers in this regard speak for themselves: in the second quarter of the 2023 the Indian GDP increased by 7.61%, representing a 6.31% increase compared to the previous year.
A trend that confirms the numerous investment opportunities for "Made in Italy" in the Asian country.
In recent years, the Indian government has committed 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 positively impacted the growth of’export to India, and today Italy is 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 common forms in India. Here corporate assets are separated from personal assets. Each shareholder is liable only for their 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 is made up 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.
The sole proprietorship is a form of business entity in which A single individual manages the entire organization. It is the sole recipient of all profits and bearer of all losses. There is no separate law governing the sole proprietorship.
A partnership is “the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.” It is governed by the Indian Partnership Act 1932 and operates according to a partnership agreement between the partners.
It is a combination of a partnership and a company. It is a separate legal entity and the partners' liability is limited to the amount of their contribution. However, LLPs cannot issue shares. Capital can only be increased in the form of additional contributions from existing partners or by the addition of new partners. The operations and profit/loss sharing of the partners are governed by the LLP agreement between the partners drafted in accordance with the relevant laws. Unlike a simple partnership, it may require registration with the Indian Ministry of Corporate Affairs to make its presence on the territory official.
If a company intends to export to India If they do not wish to be present in India with a local company, then they can consider these three forms of managing their business activities.
The term “Liaison Office” (LO) is used in the Asian country to indicate a representative office. This last one acts as an intermediary between the company based in Italy and the market contacts in India, promoting business contacts without being able to directly generate profits. 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 full-fledged company branch. Unlike the Liaison Office, it can conduct commercial operations in import/export, but in general, it cannot directly engage in production activities. If the Branch Office is located outside of one of these areas, it will be necessary to contract out these activities to a local manufacturer. In any case, this corporate model is subject to taxes.
A Project Office is assimilated to a Branch Office, with the diversity that its operations concern the implementation of a specific project in the territory. The latter can involve activities funded by international or Indian institutions, or construction work in the country.
The choice which is the best corporate structure to open 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 more appropriate for businesses that intend to approach the market decisively and stably, while a branch office is the most suitable solution for companies that want to market their products with limited investments.
In any case, it is recommended to request a consulting that delves into the needs of the company, to identify not only the corporate structure to adopt but also a strategy capable of achieving the set objectives.
If you're wondering how to set up a company in India, contact Octagona. Our specialists in internationalization will be able to give you all the information you desire and evaluate the best options.
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