If you’re planning to start a business in India, it's crucial to have a suitable legal entity type that aligns with your goals. From a regulatory and tax standpoint, the form you select can have a significant impact on how efficiently your business operates.
Here are some of the common business structures for registration and incorporation of a company in India:
For starting and growing a business in India, you may consider the private limited (Pvt Ltd) company structure. This business form makes it straightforward to get external funding, which is useful if you’re seeking investment from venture capitalists or other funding sources. It also limits the liabilities of shareholders, meaning they are only responsible for the amount invested in the business.
A Pvt Ltd company must have at least two shareholders and two directors, with one director being a resident of India. By law, you will be required to hold board meetings and file annual returns with the Ministry of Corporate Affairs (MCA). Companies with these obligations are generally seen as trustworthy and transparent, which can enhance your reputation with potential investors, clients, and other stakeholders.
However, this will require regular administrative effort, which can become time-consuming and resource intensive. As such, it is important to ensure your business is ready to manage before proceeding. Alternatively, you can rely on our tax and accounting solutions to help you stay on top of your financial obligations.
Limited liability partnership
If your business model doesn’t require raising capital through equity, you may prefer the formation of a limited liability partnership. A limited liability partnership requires at least two partners to be formed, with no cap on the maximum number of partners. One of your partners must be a resident of India.
Like a private limited company, your liability is limited to the amount contributed to the business, protecting your personal assets. You will also be safeguarded from being held responsible for mistakes or misconduct by another partner.
For this business structure, you will need to have a contractual agreement in place to ensure you and your partners are aligned. This can help prevent potential conflicts down the line.
With approval from the Reserve Bank of India (RBI), you may set up a branch office to represent your parent company and perform the same business activities. Examples of permitted services include exporting and importing goods, offering professional or consultancy services, and conducting research aligned with your parent company’s expertise.
It’s worth noting that the branch office remains legally part of your parent company. As such, any liabilities or obligations it incurs are tied to the parent company.
Also called a representative office in other jurisdictions, a liaison office can be a suitable business structure if you’re looking to explore opportunities in India without committing to full-scale operations. This option works well for networking, building brand awareness, promoting your business, and testing the market. It is, however, restricted from conducting revenue-generating activities. Consequently, you won’t be subject to taxation with a liaison office.
If your company has secured a contract from an Indian company, you may set up a project office to manage the execution of the assignment. You are eligible to open a project office if you’ve met the following conditions:
- The project is funded through direct inward remittances from abroad
- The project has received approval from the relevant authorities
- The project is financed by an international financial institution
- The company awarding the contract has secured a loan from an Indian bank or public financial institution
Note this is a temporary arrangement aligned with the completion of the project. During this period, your parent company will be accountable for any liabilities incurred by the project office.
