Starting a Business in India

India is regarded as one of the most powerful economic forces globally. Despite being a developing nation, its domestic economy significantly impacts global trade. Most of the world's developed countries want to establish or strengthen connections with India due to its influence and diverse offerings.

India is a fast-growing economy that also happens to be the world's largest democracy. The country, which has more than a billion people, has experienced a rapid economic expansion in recent years and now ranks as the world's fifth-largest economy by GDP. India's GDP growth has been the best over the last decade, with consistently 6-7% annual growth rates.

India is a popular destination for investors due to its large market base and rapidly expanding spending habits of the middle-class population. These factors have made it easier than ever for foreign nationals or investors to start a business in India.

Business opportunities in India

The Indian corporate landscape is poised to flourish in multiple fields due to booming international trade, government stimulus, and an overall strong economy.

Following are some business opportunities that have grown significantly in the last few years:

  • ~IT Services
  • ~Interior Designing & Decoration
  • ~E-commerce
  • ~Insurance
  • ~Pharmaceutical Business
  • ~Organic Farming
  • ~Cloud Kitchen

Benefits of starting a business in India

There are numerous advantages for global companies looking to start a business in India. These include the presence of a big pool of experienced specialists, government support for business-friendly regulations, appealing foreign policies, and a trained workforce.

 Given below are the benefits of setting up a company in India:

Stable Economy: In recent years, India has achieved unprecedented economic growth. It has a high macroeconomic stability grade (90 out of 100 and rated 41 out of 141 economies) in the World Economic Forum's (WEF) Global Competitiveness Index. Ths growth can be attributed to a strong democracy, major structural reforms, private consumption, and increased government investment.

Progressive business policies: The Indian government has eased Foreign Direct Investment (FDI) regulations to attract international investment, such as raising foreign equity ceilings for insurance and defense, ultimately improving the business environment.

In recent years, several key bills benefitting most industrial sectors have been passed in the Indian Parliament. The Goods and Services Tax Bill has improved the efficiency of product movement across India. The Direct Taxes Code (DTC) Bill is intended to simplify tax legislation. The Companies Bill has made Indian corporate law more progressive. Such business-friendly legislation is a crucial point for overseas companies to enter India.

Push towards digital adoption: India has emerged as a force to reckon in technological innovation. Telecommunications, information technology, pharmaceuticals, textiles, and engineering companies are equal to their international counterparts. Along with the United States and China, India is considered a significant driver in global technology innovation.

Huge consumer market: One of the critical advantages of starting a business in India is its vast population and a large market without boundaries with well-established logistics. In the coming years, India's young population and expanding economic strength will be a magnet for global enterprises.

The World Economic Forum's Global Competitiveness Index revealed India as the world's largest market for manufactured products and services. The country ranks third out of 141 economies in terms of market size. Furthermore, India's total consumption expenditure is expected to reach $5.7-6 trillion by 2030.

Blooming startup culture: The government is adopting many reforms under the 'Startup India Movement' to provide opportunities for Foreign Direct Investment (FDI) and corporate collaborations. Some steps have already been taken to deal with outdated policies and regulations. This reform is also in line with the World Bank's "Ease of Doing Business" index, which will help India improve its rating.

India has abundant mineral and agricultural resources, and during the last two decades, it has seen a considerable increase in offshore outsourcing and manufacturing. As a result, the country's economy has grown by leaps and bounds.

Requirements for starting a business in India

Starting a business in India requires extensive knowledge of legalities and the relevant regulations. Following are the requirements to do business in India:

Decide the Business Structure

Before forming an Indian entity, you must first decide the legal structure for your venture. Every business structure in Indian law has its unique rules and taxation policies. To operate with total efficiency, choose the proper structure wisely.

Register the Company Name

Business name registration in India is one of the most important steps for setting up a new venture. The company name should reflect your ethics and values regarding the business. Also, the name must be unique and not taken by another business. Choose your preferred business name and trademark it to avoid any name-related copyright issues in the future.

Create a Founder's Agreement

A Founder's Agreement details the role, rights, ownership, dispute resolution, duties and other terms between the company's founders. This agreement safeguards the interests of everybody involved in laying the foundation of the organization. During disputes between the founders, the Founder's Agreement will act as a guide toward a peaceful resolution.

Acquire licenses and registration

There are general and special licenses that businesses require to operate in India legally. GST registration, Tax account number, Shop and Establishment License and PAN are a few mandatory licenses and documents which every business requires. According to their industry, companies dealing with food items or hazardous materials need special permits.

Adhere to taxation and labor laws

There are numerous Indian tax and labor laws on state and national levels. Companies across all industries are to maintain these laws or face penalties. Seek expert help to understand these laws and draft internal policies to prevent any deviation. These legislations cover minimum wage, PF payment, incentives, tax rates, tax rebates, etc. and should not be taken lightly.

Types of Business Structures in India

Every legal structure has its own set of advantages and disadvantages. Though it is relatively easy to set up a business in India, companies must evaluate their business objectives and the duration of their presence in the economy when deciding what is best for them.

Before setting up a company in India, it is important to examine certain aspects such as tax concerns, different types of liability, ease of conducting business and much more. Following are the types of business structures in India:

Business Type Description
Public Limited Company Must have at least three directors and seven shareholders. It can be listed on a stock exchange or remain unlisted.
Private Limited Company Must have a minimum of two directors and one shareholder. This entity cannot be listed on the stock exchange.
Joint-Venture Company Formed by a partnership between foreign and Indian investors. This entity allows its investors to pool their resources to manage the risks associated with the new venture while limiting their exposure by sharing responsibilities.
Partnership Firm A minimum of two partners is necessary to start the venture. The partners have limitless liability and are free to split profits in any proportion they see suitable. Registering a partnership firm is not necessary.
One Person Company Introduced in 2013 and permitted only to Indian citizens. The motive behind this entity was to promote entrepreneurship in the country.
Sole Proprietorship A single person manages the entire operation and is responsible for all profits and losses. This entity is a good fit for people looking to start a low-risk business with a tight budget.
Branch Office Foreign enterprises with manufacturing and trading operations outside India can open a branch office in India. Manufacturing and commercial activities are not permitted in branch offices; however, the company can subcontract the project to an Indian manufacturer.
Non-Government Organisation (NGO) A citizen-based organization that operates independently of the government, usually to achieve some social purpose. They do not operate with the motive of making money and only carry out development initiatives for the welfare of society.

Company registration process

Following are the steps to register a business in India:

  1. Choose a unique business name. The name should not breach the provisions of the emblems and names, as per the Prevention of Improper Use Act, 1950.
  2. Within 60 days of receiving name approval, the applicant can file for new company registration in India by providing the relevant forms (Forms 1, 18, and 32).
  3. Arrange for the attorneys to draft the memorandum and articles of association.
  4. Arrange for the memorandum and products to be stamped with the necessary stamp duty.
  5. Get at least two subscribers to sign the Memorandum and Articles with their father's name, occupation, address, and the number of shares subscribed.
  6. Make sure that the Memorandum and Article are dated after the stamping date.
  7. Fill out the following forms and attach the required documents indicated in the eForm after logging into the site: Declaration of compliance - Form-1, Notice of situation of registered office of the company - Form-18, Particulars of the Director's, Manager or Secretary - Form-32.
  8. Deliver the hard copy of the Memorandum and Article of Association to the RoC after submitting the eForms with the digital signature and pay the required filing costs.
  9. Obtain a Certificate of Incorporation from RoC once the Form has been processed and a Corporate Identity has been generated.

How much does it cost to incorporate a company in India?

The cost of incorporating a private limited company includes numerous factors, such as:

  • ~Number of directors
  • ~Number of members
  • ~Authorized share capital
  • ~Professional fees

The professional fees range from INR 2,000 to INR 20,000, as they depend heavily on the complexities of the tasks. The total cost is between INR 6,000 and INR 30,000.

Are Foreigners in India on Certain Passes Allowed to Start a Business in India?

A foreign national can start a business in India without any special pass for ventures under the automatic route. The government allows 100% FDI and no special permission in this route. The steps are very simple:

  1. Notify the Regional Office of the Reserve Bank of India within 30 days of the receipt of inward remittances
  2. File the necessary documents along with the form FC-GPR within 30 days of issuing shares to the foreign nationals

In the government route, however, the foreign nationals must get approval from the government to invest in specific ventures. Following are the cases where government approval is necessary:

  • ~Where more than 24% of the foreign equity is inducted to manufacture items for the small-scale sector
  • ~Industries that attract provisions of Press Note 1 (2005 Series), issued by the Government of India

How Can Multiplier Help?

Starting a business in India can be challenging if you do not possess the knowledge and expertise to navigate Indian laws and legislation. Partner with a PEO, like Multiplier, to expand your global team. Consequently, you need not worry about onboarding employees, payroll processing and legal compliances.

With Multiplier, you can easily hire and pay your full-time employees worldwide. Without setting up a company in India, you can develop international teams, adhere to labor laws, offer benefits and contracts to your employees and pay them in their preferred currency. Connect with us to know more.

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