While setting up in India, foreign companies should choose an entity structure that caters best to their need. Selection of the right entity structure will help the company establish itself as a strong player in the Indian market, and also help them reap financial gains.

A foreign investor or company may set up as an unincorporated entity or incorporated entity in India.

Unincorporated entities permit a foreign company to do business in India by establishing a liaison office, branch office, project office, or a trust. An incorporated entity, like a limited liability partnership, joint venture, or a wholly owned subsidiary is considered a separate legal entity and has a more structured setup.

Entity Structures and Their Setup Process

Liaison office

Foreign companies may open a liaison office in India if they wish to expand their businesses and interact with Indian customers. Also known as a representative office, it can only act as a communicator between the foreign parent company and Indian company as it is not allowed to conduct any revenue generating business activity in India. Since it cannot engage in commercial, trading, or industrial activities, their operating cost must be sustained by inward remittances received from their foreign parent company.

Foreign companies often use the liaison office to create awareness about their services and products, promote their business activities, network, and explore market potential. The liaison office will be established as per the provisions of the Foreign Exchange Management Act that was launched in 1999 under the guidance of the Reserve Bank of India (RBI).

Features of a liaison office

  • Represent the foreign parent company
  • Carries out only liaison activities
  • It is referred to as a ‘place of business’ (POB)
  • It can provide information about potential market opportunities
  • It can provide information about the company and the products it manufactures to Indian customers
  • Promote export and import between the countries
  • Establish technical and financial cooperation between the foreign and Indian companies
  • Facilitate communication between the parent and Indian companies
  • The foreign company should have a profit-making track record during the immediately preceding three financial years in the home country
  • The foreign company should have a minimum net worth of US$50,000
  • Foreign applicants should have the latest audited balance sheet
  • The latest balance sheet has to be certified by a certified public accountant or any registered accounts practitioner
  • Foreign applicants should have the English version of the Certificate of Incorporation/ Registration or Memorandum and Articles of Association
  • The COI/MOA & AOA should be attested by Indian Embassy/notary authority in the country of registration
  • The bankers’ report from the applicant’s banker in the host country should show the number of years the applicant has maintained banking relations with that bank

Branch office

Foreign companies can set up branch offices that will be responsible for carrying out the branch activity for its businesses. To establish these offices, it is necessary to follow the provisions laid down by the RBI and the Companies Act, 2013.

Foreign companies can generate revenue from the Indian branch office from those activities allowed by the Reserve Bank of India. The branch office requires approval from the RBI and once it is given, it can commence with its operations.

The Indian branch office must meet all its expenses through remittances from the foreign head office or through revenue generated from the Indian operation – as permitted by the RBI. Though the branch office is not permitted to engage in manufacturing activities on their own – these may be subcontracted to an Indian manufacturer. Further, if a branch office is operating in a Special Economic Zone (SEZ), then it is permitted to undertake manufacturing and service activities in sectors with 100 percent FDI approval.

Foreigners utilize branch offices to test and understand the Indian market under the control of the RBI. All business activities need to be approved.

Branch offices are permitted to undertake following activities:
  • Export/import of goods
  • Rendering professional or consultancy services
  • Carrying out research work in which the parent company is engaged
  • Promoting technical or financial collaborations between Indian companies and parent or overseas group company
  • Representing the parent company in India and acting as buying/ selling agent in India
  • Rendering services in Information Technology and development of software in India
  • Rendering technical support to the products supplied by parent/group companies
  • Representing a foreign airline/shipping company
Branch offices are prohibited to undertake the following activities:
  • Retail trading activities of any kind
  • Any direct or indirect manufacturing or processing activities in India

 All earned profits are freely remittable from India but subject to payment of applicable taxes.

General features of a branch office include:
  • The name of the Indian branch office needs to be the same as the parent company
  • The governing body for the branch office license will be the Reserve Bank of India
  • It is suitable for foreign companies who are looking for a temporary office
  • All expenses of the office are met by the head office if it does not receive revenue from Indian operations
  • It can increase the foreign company’s customer base by spreading its business to diverse locations

Project office

A project office can be established if a foreign company has received a contract from an Indian company to execute a project in India. It is set up for a limited period of time. For example, if a foreign company has received a contract to execute an infrastructure or installation project in India through project offices duly registered with the RBI and the Registrar of Companies (ROC).

The difference between a project office and a liaison office is that project offices can carry out commercial activities in relation to the project awarded but liaison projects cannot carry out commercial activities.

Eligibility criteria

Foreign companies may launch project offices to execute projects in India only if they have received a contract to do so from an Indian company and if:

  • The project is directly funded by an inward remittance from abroad
  • The project has been approved by the appropriate authority
  • The project is being funded by an international financial institution
  • The Indian company awarding the contract has been granted a loan from a bank or other public financial institution in India

Cases of exception:

  • Approval from the RBI is granted in consultation with the government of India to those entity residents in Pakistan, Bangladesh, Sri Lanka, Iran, Afghanistan, China, Macau, or Hong-Kong who wish to open offices in Jammu & Kashmir, the northeastern states, or the Andaman and Nicobar Islands. In all other cases, authorized dealer category-I banks may grant
  • If a contract settled by a project office has been awarded by the Ministry of Defense, then its proposals relating to the defense sector will require no other approval from the government of India.

Limited liability partnership (LLP)

A limited liability partnership (LLP) is a hybrid cross between partnership firms and a company (private or public). LLP has limited liability for its partners like a company, and it receives tax benefits like a partnership firm. Under this structure, the liability of the partner is limited to their agreed contribution, and it provides flexibility without the imposition of detailed legal requirements.

Since the Limited Liability Partnership Act was passed in 2008, the LLP has evolved to become a popular business entity in India. It is a preferred corporate establishment strategy for many small-and-medium sized enterprises in India.

Foreign investors have also begun to show interest in investing in LLPs. In 2015, the FDI policy was amended such that investment in LLPs in sectors that permit 100 percent FDI via the automatic route will not require government approval. Foreign companies can make any downstream investment in any other company or LLP operating in sectors that permit foreign investment. Downstream investment refers to indirect foreign investments made by an Indian entity being controlled abroad into another Indian LLP by means of acquisition or subscription.

However, investors or companies from Bangladesh and Pakistan are only permitted to make investment in LLPs in sectors that allow FDI through the government route.

FDI in an LLP under the automatic route is subject to the following conditions:

  • The LLP should come under a sector that has no FDI-linked performance conditions, which refers to sector specific conditions for companies receiving foreign investment
  • The LLP should be in a sector that permits 100 percent FDI
  • The conditions of the LLP Act of 2008 are met

The eligible form of FDI accepted from foreign entities includes their investment either by way of capital contribution or transfer of profit shares in the capital structure of the LLP. Eligible investors include all foreign persons/entities except: 

  • Foreign portfolio investors
  • Foreign institutional investors
  • Foreign venture capital investors that have been registered in accordance with the guidelines of the Securities and Exchange Board of India (SEBI)

Here are a few advantages of setting up an LLP:

Apart from being registered with the corporate affairs ministry, the steps below should be followed to incorporate an LLP in India: 

  • The process is simpler and less expensive compared to other office types. The minimum fee for incorporating an LLP is INR 500 (US$7) and the maximum fee is INR 5,000 (US$70), depending on the capital contribution
  • There is no requirement to get the accounts audited unless the annual turnover exceeds INR 4 million (US$55,750) or contribution to the LLP exceeds INR 2.5 million (US$34,900)
  • There is no minimum capital requirement for registration of an LLP
  • Partners are not liable to pay the company debts from their personal assets
  • Partners are permitted to enter any legal contracts outside India

Wholly owned subsidiary (WOS)

A wholly owned subsidiary (WOS) operates as an independent legal entity whose 100 percent common stock is owned by another company, the parent company. In other words, the foreign company holds 100 percent of the subsidiary’s total share capital. The WOS can be a part of the same industry as its parent company or a part of an entirely different industry.

For foreign investors, the WOS allows them to have control over business operations, provide limited liability, and see fewer restrictions on business activities compared to a liaison office or project office. However, the activities must be in accordance with the FDI policy.

Foreign companies can set up wholly owned subsidiaries in the form of private limited companies in sectors where 100 percent FDI is permitted.

The WOS will be subjected to Indian taxes and laws as applicable to other domestic companies in India. Under this structure, companies have to pay Corporate Income Tax (CIT).

Joint venture (JV)

A joint venture is a partnership between two or more companies or individuals who agree to pool capital or goods into a uniform project. Joint ventures in India have been most popular for sectors that do not have 100 percent FDI.

Joint ventures offer relatively low risk to foreign companies, provided that these companies conduct due diligence on their Indian partners. A joint venture allows foreign companies to utilize the existing networks of their Indian partners, and once taxed, such companies can remit their Indian profits outside the country.

A JV may be formed with any of the business entities existing in India.

Corporate JVs will also be subject to the country’s tax laws, FEMA, labor laws (such as Code on Wages Act, 2019, Industrial Disputes Act, 1947, and state-specific shops and establishment legislation), the Competition Act of 2002, and various industry-specific laws. 

Key Market Entry Options

Entity Type


Setup time



Liaison Office (LO or Representative Office)

  • Used for networking, exploring market opportunities, and promoting parent company’s business activities

6 - 8 weeks

  • Beneficial for foreign investors to test the waters
  • Not subject to taxation
  • Lower tax and import duties;
  • Fewer on-going formalities as compared to other business entities
  • Not allowed to conduct any business
  • LO can only act as a communication channel
  • Permission to set an LO is initially granted for a period of 3 years and this may be later reviewed for extension
  • Has to sustain itself through private remittances from the parent company

Branch Office (BO)

  • Allowed to conduct same business as parent company including import and export of goods, consultancy and professional services, among others

6 - 8 weeks

  • Permitted scope of business activities broader than liaison office
  • Fewer compliances compared to a wholly owned subsidiary
  • Not permitted to engage in retail trading or processing activities
  • Manufacturing is permitted if subcontracted to an Indian manufacturer
  • High effective tax rate of 43.68%*

Project Office (PO)

  • PO can be established if a foreign company receives a contract from an Indian company
  • In case of no contract, prior approval from the RBI is required

4 weeks

  • Suitable for executing a specific project such as one time turnkey or installation projects
  • Exists only as long as duration of contract
  • High effective tax rate of 43.68%*

Limited Liability Partnership (LLP)

  • LLP is a hybrid of a partnership firm and a company
  • LLPs are governed by the Limited Liability Partnership Act, 2008

4 - 6 weeks

  • Liability of Partners is limited to the extent of their contribution in LLP
  • No minimum capital requirement conditions
  • Effective tax rate of 34.94%*
  • Less compliances as compared to a WOS
  • FDI is permitted under the automatic route in LLPs operating in sectors/ activities where 100% FDI is allowed through the automatic route and there are no FDI-linked performance conditions
  • Mandatory to have one designated partner who is an Indian resident

Wholly Owned Subsidiary (WOS)

  • Foreign companies can set up WOS in form of private limited companies in sectors where 100 percent FDI is permitted

4 - 8 weeks

  • Total control over business activities
  • Fewer restrictions on scope of activities
  • Effective tax rate of 25.17%* for domestic companies and 17.16%* for new manufacturing companies established after October 1, 2019
  • Mandatory to have an Indian Resident Director
  • Requirements to conduct mandatory Board Meetings


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