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Type of Business Entity considerations - Aryan Consulting

Updated: Jul 21, 2023

The following types of business entities are usually used by foreign investors to set up a business in India:


Corporations, of two types:

Private Limited Company: A company limited by shares in which there can be maximum 200 shareholders, no invitation can be made to the public for subscription of shares or debentures, cannot make or accept deposits from Public and there are restriction on the transfer of shares. The liability of each shareholder is limited to the extent of the unpaid amount of the shares face value and the premium thereon in respect of the shares held by him. However, the liability of a Director / Manager of such a Company can at times be unlimited. The minimum number of shareholders is 2 and a minimum paid-up capital of 0.1 million rupees.


Public Limited Company: A company limited by shares in which there is no restriction on the maximum number of shareholders, transfer of shares and acceptance of public deposits. The liability of each shareholder is limited to the extent of the unpaid amount of the shares face value and the premium thereon in respect of the shares held by him. However, the liability of a Director / Manager of such a Company can at times be unlimited. The minimum number of shareholders is 7 and a minimum capital of 0.5 million rupees.


Other business forms:


Limited Liability Partnership: It is a partnership in which some or all partners (depending on the jurisdiction) have limited liabilities. It therefore exhibits elements of partnerships and corporations. In an LLP, one partner is not responsible or liable for another partner's misconduct or negligence.


Liaison Office: Subject to specific approval by Royal Bank of India, these offices act as a communication channel between the foreign corporations and the Indian customers. They are normally established with exploring purposes, before setting up a more permanent presence. Liaison Offices must be registerd with the Registrar of Companies.


Project Office: Once secured a contract from an Indian company to execute a project in the country, a foreign corporation may establish a Project Office without obtaining prior permission from Reserve Bank of India.


Branch Office: It requires a special approval from Royal Bank of India, must register with the Registrar of Companies and cannot undertake any activity that is not specifically permitted. It can export/import good, render professional or consultancy services, carry out research work in which the parent company is engaged.


Subsidiary Company: It is incorporated under the laws of India and they provide maximum flexibility for conducting business in the country. No approval is requires for the repatriation of dividends.


Licensing: Licensing is the permission for someone else to use your intellectual property rights: either a patent, trademark, trade secret, or copyright. Different types of license include:


Franchising In India: Franchising is the licensing out of a business name, product, technique, philosophy, trademark, etc, for a percentage of the income. Instead of setting up new outlets as part of your expansion, you license your existing business blueprint out to franchisees who then set up and manage it for you.


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Selecting Type of Business Entity
Selecting Type of Business Entity

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