Doing Business In India – Contracts and Commercial Law

BACKGROUND

In 2014, the Government of India launched ‘Make in
India’, a campaign aimed at transforming India into a
manufacturing hub and promoting innovation. In line with this
objective, the Government has taken various measures to minimize
bureaucratic hurdles to improve the ease of doing business in
India. These measures have led to a significant improvement in
India’s rankings in the ease of doing business index published
by the World Bank. In 2014, India was ranked at 143 among 193
countries. Currently, India ranks at the 63rd position in the
index. Last year, the Union Budget 2023-24 highlighted that to
simplify the legal and regulatory framework for businesses, more
than 39,000 compliances have been reduced and more than 3,400 legal
provisions have been decriminalized. This is supplemented by
various initiatives such as the ‘Start-up India’ campaigns
launched by the Government to promote entrepreneurship.

Given the efforts by the Indian Government to increase
participation of global companies in India, it is relevant to
understand the construct and framework of establishing a presence
in India. In this note, we have provided an overview of the forms
of business enterprises, funding routes, regulatory framework for
doing business in India, foreign exchange laws and applicable tax
regimes in India. You will appreciate that the structures / routes
mentioned in the note are only illustrative to provide a high-level
understanding of theregulatory regime in India.

CONDUCTING BUSINESS IN INDIA

Setting up presence in India

Operating as a Foreign company

• Liaison Office or Representative
  Office: A liaison office is a place of business which
  acts as a channel of communication between the head office of the
  foreign company and its Indian entities. Typically, a liaison
  office is set up to understand the business environment, promote
  awareness of the products of the parent entity and explore
  opportunities for business and investment.

  Key considerations: (i) Liaison office cannot undertake
  any commercial, trading, or industrial activity either directly or
  indirectly in India; (ii) it cannot earn any income in India; and
  (iii) the expenses of a liaison office are mandatorily required to
  be met out of inward remittance from the head office of the foreign
  company.




• Branch Office: Branch office is an
  extension of a foreign enterprise in India. The purpose of a branch
  office is to engage in the same activity as the parent company. A
  branch office may undertake the following permissible activities:
  (a) export / import of goods; (b) render professional or
  consultancy services; (c) carry out research work, in the areas in
  which the parent company is engaged; (d) promote technical and
  financial collaborations between the Indian companies and the
  parent or overseas group company;

  (e) represent the parent company in India and act as a buying /
  selling agent in India; and (f) render services.




• Project Office: Foreign enterprises
  that have secured a contract in India and are planning to execute
  specific projects through temporary sites/ offices are permitted to
  set up a project office. The validity period depends on the tenure
  of the project. A general permission is granted for setting up a
  project office subject to one of the following conditions: (a)
  project is funded directly by inward remittance from outside India;
  (b) project is funded by a bilateral or multilateral international
  financing agency; (c) the company or entity in India awarding the
  contract has been granted a term loan by a public financial
  institution or a bank in India for the project; or (d) project has
  been granted the necessary regulatory clearance.

Operating as an Indian company

• Subsidiary Company: Setting up a
  company in India (through incorporation or acquisition) is
  preferred for businesses having a long-term approach and for
  various legal, tax and regulatory reasons. Such companies
  (generally incorporated as a subsidiary of the overseas parent) are
  treated as ‘person resident in India’ for the purpose of
  Indian laws, despite being 100% foreign owned.




• Limited Liability Partnership (LLP):
  LLP is a body corporate, which is considered a separate legal
  entity, distinct from its partners. While an LLP provides benefits
  like that of a company, LLPs are comparatively easier to operate
  with fewer compliance requirements. In an LLP, liability of
  partners is restricted to their contribution to the LLP.