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With the ease in Foreign Direct Investment (FDI) rules, India has become one of the most attractive destinations for foreign investment. As per the Commerce and Industry Ministry of India the FDI inflows were about $60.08 billion in 2016- 17 which is an overall record till date. Foreign investment can be made in the country in many forms like a private limited company, Public Limited Company, Multi National Company (MNC), Joint Venture Company, branch office, etc. Limiting our discussion to the incorporation requirements of MNCs in India, the process can be carried out in any of the three ways:
Step by step process for the above can be summarized as follows:
1. Forming a new company: the process involves incorporating a new Pvt. Ltd company in India. This is the most popular and easy form of business for foreign investments. Companies Act 2013 and Companies (Registration of Foreign Companies) Rules, 2014 lays down the requirements for incorporating a company. The process can involve complete (100%) foreign investment and does not require any government approval as is required in the case of a branch office of project office.
Thus it takes less than 30 days to incorporate a company in India.
2. Branch Office or project office of a foreign company: In order to open a branch office or project office in India the foreign company needs approval from the Reserve Bank of India (RBI). The company needs to make an application to the RBI through the Authorized Dealer Category – 1 Bank of India The RBI allows certain activities to be carried out by the branch office and prohibits some activities. If the industry to which the foreign company belongs comes under the 100% automatic route of FDI policy, the RBI will easily approve the branch office. However, if it is otherwise the RBI will allow the branch office only after consultation with the Ministry of Finance, Government of India. In addition the RBI will allow the foreign company to open a branch office in India only if it satisfies certain criteria like-
3. Wholly owned subsidiary: In a wholly owned subsidiary the 100% shares of the company are owned by another company. Thus a foreign company can invest in India through a wholly owned subsidiary. In industries where 100%FDI is permitted, no prior approval of RBI is required before setting up the business. The setting up of a wholly owned subsidiary is more or less like a Pvt. Ltd Company and requires at least two directors, two shareholders and a minimum paid up capital of Rs 1 lakh.