India’s procedure for setting up an appropriate legal entity

India's procedure for setting up an appropriate legal entity

Are you looking to start a business in India? What legal entity should you set up? You don’t have to worry as legal professionals and firms offer advice and consultancy services that will help you make the right decision.

A legal entity is a setup for the operation of a business. In India, business operations can be done by setting up:

  • Private Limited company – This can be either a wholly-owned subsidiary or joint venture
  • Public Limited Company
  • Limited Liability Partnership

A foreign business may want to conduct its business activities through the establishment of one or more of these:

Liaison office: This is an intermediary between Indian companies and Indian entities. It assists in understanding Indian markets and the Indian investment climate.

Project office: Established by the parent company of India to oversee, facilitate, and execute activities related to a specific project.

Branch office: If there is a requirement for physical presence, a foreign company involved in manufacturing and trading activities establishes a branch office here. Only the RBI can approve such an office to carry out permitted activities. It is not allowed to engage in any manufacturing activity.

Import and Export, Technical and Financial Collaborations, Professional and Consultancy Services are some of the permissible activities.

How to set up a legal entity

There are many legal and statutory requirements for the formation and operation of legal entities. India’s business environment is subject to regulations and limits set by the RBI Guidelines and Government of India Policies.

Finalization and drafting of all types of corporate contracts

Most commonly, the procedure for establishing a legal entity involves the following steps:

  • Obtain the DIN- Director Identification number or Designated Partnerships Identification Number (DPIN), if you are a member of LLP.
  • The Digital Signatures Certificate (DSC) is required. The Company’s Directors must obtain a DSC.
  • Primary charter documents such as the Memorandum of Association and Articles of Association must be carefully drafted. These documents are submitted to the Registrar of Companies when you apply for incorporation.
  • Incorporation – We now have an integrated form that is used to submit your application for incorporation. This form is used to allot DIN, reservation name, and incorporation. Fill out a form and submit it to the Registrar of Companies. You will collect a certificate of incorporation.
  • You must apply to an Authorized Dealer Bank as approved by RBI with a copy of the following documents: Certificate of incorporation, audited financial statements of the applicant for three years, Banker’s report from the country where the foreign company is located, etc.

The bank approves the establishment of the branch office/liaison/project office. The bank will also get the UIN (Unique ID Number) from RBI. This number is assigned to a legal entity and used to manage and maintain its records.

Additional registrations are required after the formation of the legal entity. These include

  • PAN-Permanent Account Number of the legal entity
  • TAN – Number for Tax Deductions and Collections
  • GST – Number for Goods and Services Tax
  • IEC – Importer Exporter Code certificate

All of these registrations are required depending on the nature of your business. These are required for various business transactions and communications.

Other statutory requirements:

  • Audit by Chartered Accountant
  • Tax Audits
  • Annual submission of activity certificate with RBI and AD bank
  • Filing quarterly TDS returns
  • No filing of IT returns in the case of Liaison Office, as there is no income.
  • GST Audit and GST Returns
  • Annual Filing of Audited Accounts with ROC
  • If the entity is not a branch, liaison, or project office, it may conduct board meetings.

Foreign direct investment can also be entered the Indian economy via any of these routes:

Automated Route

Government Approval Route

The nature of the investment and the economic sector in which it is to be made will determine the investment route.

It is better to seek legal advice and to hire Best Delhi Lawyers. These professionals can provide guidance and assist with choosing the right legal entity. They are also able to represent the company before the government officials and complete all legal formalities.

Read more: Debit Card, Credit Card Auto-Payment Changes: Here’s what you should know.


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