India has been identified as one of the fastest growing major economies in the world, its service industry being the key contributor. India is going through a phase of extraordinary economic liberation and is encouraging foreign direct investment by granting more accessibility to its massive and diverse market. For these reasons, many companies are now targeting expansion in India. Foreign investors can set up various types of business entities in India. Depending on the purpose, goals, initial investment, and the duration (short term/long term) of business, investors can decide the suitability of structure for their business. Read on to learn more about types of business entities in India.
A Public Limited Company in India has a minimum of three directors, a minimum of seven shareholders, and can have a maximum of unlimited shareholders. It can either be listed in a stock exchange or remain unlisted. Once the company is listed as a Public Limited Company in a stock exchange, its shareholders can freely trade the company’s shares. Since it is a separate legal entity, the company’s existence is not affected by retirement, death, or insolvency of its shareholders. Incorporating such types of entities can be difficult and time-consuming.
A Private Limited Company in India is a privately held small business entity and considered as an independent legal entity on incorporation. It has a minimum of one and a maximum of fifty shareholders. Unlike Public Limited Companies, Private Limited Companies cannot publicly trade its shares. It can have a minimum of two and a maximum of fifteen directors.
A Joint Venture (JV), as the name suggests, is a new business entity created through a partnership between foreign and Indian investors, in which the partners jointly share the profits, losses, management responsibilities, and operation expenses. The advantages of joint ventures are that the foreign company can utilize the well-established contact network, distribution, marketing channels, and the available financial resources of the Indian partner. A JV also offers the investors to jointly manage the risks involved with the new business and limit their individual exposure by sharing the liabilities.
A partnership is “the relation between people who have agreed to share the profits of the business carried on by them or any of them acting for all”. A Partnership Firm in India is a type of Joint-Venture Company. The owners of a partnership firm are individually known as partners and collectively known as a firm. A minimum of two people are required to start a partnership business. The maximum number of partners is ten. The partners have unlimited liability and can share profits in any mutually agreed ratio. The registration of a partnership firm is not compulsory.
A One Person Company (OPC) is a newly introduced type of company in India since 2013. Incorporating an OPC is only permitted to a resident of India. No foreigner can incorporate an OPC. An OPC can be owned by a single owner. It was introduced to encourage individual entrepreneurs to start their own business. This is a type of a private company and likewise can feature as a separate legal entity. The liability of the owner is limited.
A sole proprietorship in India is a form of a business entity where a single individual handles the entire business organization. The individual is the sole recipient of all profits and bearer of all losses to the business. The liability of the owner is unlimited. A Sole Proprietorship business is suitable where the market is limited, localized, and where customers give importance to personal attention. This type of company is suitable when the capital required is limited and the risk- involvement is not huge. There are less legal formalities as proprietorship does not have a legal existence.
Foreign companies engaged in manufacturing and trading activities abroad can set up Branch Offices in India. Branch Offices are not allowed to carry out manufacturing activities on their own but can subcontract those to an Indian manufacturer. Before commencing operations, the branch office requires an approval from the Reserve Bank of India (RBI). Commercial activities of any nature are not allowed for a Branch Office.
Non-Government Organization (NGO) or Nonprofit Company is a citizen-based association that operates independently of the government, usually to serve some social purpose. These organizations are not intended towards gaining profits and work for promoting a cause or development projects for the betterment of society.
NNRoad can assist companies seeking to setup their own formation in India. We understand that corporate formation can be complex as it involves approval from multiple local authorities and bureaus. It also requires an understanding of the country’s social, cultural, and legal particulars. Through its strategic partners in India, NNRoad can accelerate your entry into India and make sure that the whole process of company formation runs smoothly.