According to the International Monetary Fund, India is set to become the third largest economy in the world by 2030. Despite the global economic slowdown, India’s GDP has been growing at an average of 8.5 percent in the last five years. A BBC World Service survey conducted in over 24 countries ranked India as the fourth best place in the world for entrepreneurs to start a new venture. A young and educated workforce, a strong entrepreneurial culture, a vibrant economy and the fact that English is widely spoken are major attractions for expat entrepreneurs to start a business in India.
The government of India has made a concerted effort at easing regulations for expats to start businesses in India. However, the process of reform is slow and starting a business is still an exercise in patience and perseverance.
Due to the ever-changing regulations pertaining to foreign ownership of small businesses in India, one needs to seek expert help in setting up a business venture in the country. Reputed chartered accountants, company secretaries and corporate lawyers are well versed in the laws that govern foreign-owned businesses in India and usually have a wide network of contacts in the establishment to get things done.
Timeframe to incorporate a business in India
Setting up a business in India can take anywhere between two to four months for expats, depending on a myriad of factors, including the clearances to be obtained, the government department in question and the extent of influence your corporate lawyer or chartered accountant has within the system.
Types of business entities in India
The following options are available to foreign citizens looking to start a business in India:
Limited Company
A limited company is the most preferred form of business enterprise for expats and foreign citizens looking to start manufacturing units, export/import businesses and medium- to large-scale consulting companies in India. Formation of a limited company is governed by the Companies Act of 1956. The law allows foreign citizens to become full-time directors or managers in the company. Private limited companies are required to have a minimum of two shareholders and an initial paid-up capital investment of INR 100,000. The time taken to incorporate a company with expat directors and shareholders is approximately six to eight weeks.
Limited Liability Partnership (LLP)
Liberalisation and economic reforms have led the government to allow Foreign Direct Investment in the form of LLPs. This form of business is preferred by expats who are keen to take on a local partner in their trading businesses, restaurants, small consulting firms and all other service sector operations. Formation of an LLP in India is governed by the Limited Liability Partnership Act of 2008. Prior approval has to be sought from the Foreign Investment Promotion Board (FIPB) for the formation of an LLP by foreign citizens who serve as partners.
Sole Proprietorship
Expats who wish to get into independent consulting or trading in the form of a shop can start a proprietorship enterprise, provided they get prior approval from the Reserve Bank of India and the Foreign Investment Promotion Board. It has to be noted however that the amount invested in a proprietary business cannot be repatriated outside India.
Steps to get a company incorporated in India
-
The shareholders and directors of the proposed new company need to get Permanent Identification Numbers (PAN) from the Income Tax Department.
-
The directors of the company have to apply for Director Identification Number (DIN).
-
Obtain a Digital Signature Certificate (DSC) from a government certified agency.
-
Submit up to six names for the company in order of preference to the local Registrar of Companies.
-
Forms can be downloaded from the Ministry of Corporate Affairs website.
Procedure for naming a company
-
Check if the proposed name of the company is available on the Ministry of Corporate Affairs website.
-
Ensure that the proposed name is not similar to any existing company name and is within the stipulations laid down by the Prevention of Improper Use Act of 1950.
-
An application has to be made with the local Registrar of Companies for approval of the company name.
-
The process of registration of the business can commence once the name of the company is approved.
Note: The approved name is reserved for the applicant for 60 days, after which it will be made available for other applicants if the company is not incorporated within such time.
Visas for directors and employees of a company in India
-
A multiple entry business visa is issued for a period of five years to shareholders and directors provided all the requirements are met.
-
Indian embassies abroad may grant 10-year business visas for citizens of the United States.
-
Foreign employees of an Indian company are issued employment visas that are usually valid for two years.
-
In certain highly skilled sectors, employment visas may be granted for a period of three years.
Business culture in India
Agent system
Relationships
Indians lay a lot of emphasis on relationships. Building a personal rapport with your local partner, advisor or business associate is of paramount importance. A third party introduction from someone of good standing in the business community also gives you immediate credibility. Decisions are often made based on mutual trust and intuition rather than statistics, presentations and empirical data. Engaging in small talk and asking personal questions regarding one another’s family before getting down to business is the norm.
Hierarchical culture
It is essential to maintain strong working relationships with senior figures in an Indian business as all final decisions rest upon them. Anyone who is of higher rank should be addressed with their appropriate title before their name. When entering into discussions, always greet the most senior people in the room first. Business cards are exchanged at the first meeting and should always be given and received with the right hand.
Negotiations
Schedule meetings well in advance and call to confirm a day or two prior to the meeting. Be flexible as last-minute rescheduling is common. Punctuality is expected at formal meetings, but that does not necessarily apply to deadlines. Be patient as being forceful can be mistaken for aggression. Disagreement is rarely expressed in a direct manner as it is considered rude; therefore, do not expect to hear a direct ‘no’. Pay careful attention to nonverbal cues and phrases like “I will try” or “We will see”.
Work-life overlap
Indians tend to work long hours, sometimes in excess of 10 hours a day, six days a week. Don’t be surprised or offended if you receive a business call after work hours or over the weekend. You may receive lunch or dinner invitations from your co-workers or business associates over the weekend. When eating out, all food on the table must be shared. It would be impolite to order separately or eat non-vegetarian food if the rest of the group consists of vegetarians. The group usually arrives on a consensus on what to order.
