Types of Entity / Company in India for Foreign Investors

Foreign companies/ entities/subsidiary/ individuals can set up wholly-owned subsidiary in sectors where 100% foreign direct investment is permitted. The subsidiary may be either of the following business entities:


* Private Limited Company

* Public Limited Company

* Limited Liability Partnership (LLP) [Conditionapply]


Foreign Companies can set up their operations in India through the following business entities:


* Liaison Office/Representative Office

* Project Office

* Branch Office

Such offices can undertake any permitted activities. Companies should have to register themselves with Registrar of Companies (ROC) within 30 days of setting up a place of business in India.



Private Limited Company as a Subsidiary


A private company is a company which has the following features:


* Shareholders’ right to transfer shares is restricted;

* The number of shareholders is limited to maximum fifty; and

* Any invitation to the public to subscribe to shares or debentures is forbidden.

   *An entity of Private Limited Company is the most favorable type of business entity used for Foreign Investors in India.


Public Limited Company as Subsidiary


A public company is having following features denote to a public company:


* It must have at least seven shareholders.

* A public company should obtain permission to start the business after incorporation and issue of certificate. 

* It must publish a prospectus or file a statement in lieu of a prospectus before starting business.

* A public company is required to have at least three directors.


Limited Liability Partnership (LLP)


12 May 2011 ... The Cabinet Committee on Economic Affairs on Wednesday approved the proposal to amend the policy on allowing Foreign Direct Investment (FDI) in Limited Liability Partnership (LLP) firms, said a press release.


The FDI in LLPs will be implemented in a calibrated manner, beginning with the ‘open’ sectors where monitoring is not required, subject to the following conditions:


(a) LLPs with FDI will be allowed, through the Government approval route, in those sectors or activities where 100% FDI is allowed, through the automatic route and there are no FDI-linked performance related conditions.


(b) LLPs with FDI will not be allowed to operate in agricultural/plantation activity, print media or real estate business.


(c) LLPs with FDI will not be eligible to make any downstream investments.


There are also further following conditions relating to funding, ownership and management of LLPS.



Funding of LLPs


An Indian company, having FDI, will be permitted to make downstream investment in LLPs only if both the companies, as well as the LLP are operating in sectors where 100% FDI is allowed, through the automatic route and there are no FDI-linked performance related conditions.


Also, Foreign Capital participation in the capital structure of the LLPs will be allowed only by way of cash considerations, received by inward remittance, through normal banking channels, or by debit to NRE/FCNR account of the person concerned, maintained with an authorized dealer/authorized bank.


Further, Foreign Institutional Investors (Flls) and Foreign Venture Capital Investors (FVCIs) will not be permitted to invest in LLPs. LLPs will also not be permitted to avail External Commercial Borrowings (ECBs.)


There are certain guidelines that would oversee the ownership and management of LLPs


For the purpose of determination of the designated partners in respect of LLPs with FDI, the term "resident in India" would have the meaning, as defined for "person resident in India", under Section 2(v) (i) (A) & (B) of the Foreign Exchange Management Act, 1999. In case the LLP has a body corporate as a designated partner, the body corporate should only be a company registered under the Companies Act and not any other body, such as an LLP or a trust.


It has to be noted that conversion of a company with FDI into an LLP will be allowed only if the all the stipulations are met and with the prior approval of FIPB or government. Further, the designated partners will be responsible for compliance with the conditions and liable for all penalties imposed on the LLP for their contravention.


Presently, FDI is allowed in Indian companies in a firm or a proprietary concern, subject to certain conditions. FDI in a trust is also allowed with prior Government approval, provided it is a Venture Capital Fund (VCF).


The CCEA’s approval will benefit the Indian economy by attracting greater FDI, creating employment and bringing in international best practices and latest technologies in the country.


The Limited Liability Partnership Act, 2008 (LLP Act) was notified in April, 2009. With the passage of this Act, a new hybrid entity, incorporating the features of a body corporate and a partnership, can now be formed for the purpose of undertaking business in India.


Note: All the companies Private Limited, Public Limited and Limited Liability Partnership (LLP) are governed under Indian Companies Act 1956 and it need day to day transaction by regular consultation from competent company consultants.

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