An overseas company that wants a presence in India usually chooses between four vehicles. The choice decides who can sign, what the entity may do, how it is taxed and how hard it is to close. It is worth deciding on paper before anyone books a flight.
The four usual options
Most foreign businesses end up with one of these. Each is governed by a different body of law, and each carries a different level of commitment.
| Vehicle | Main law | May it earn revenue? | Who approves set-up | People on the ground |
|---|---|---|---|---|
| Private limited company (subsidiary) | Companies Act, 2013; FEMA non-debt instrument rules for the investment | Yes, within its objects and the sector's foreign-investment conditions | Registrar of Companies (incorporation); automatic route for investment in most sectors | At least two directors, one resident in India |
| Limited liability partnership | Limited Liability Partnership Act, 2008 | Yes, but foreign investment is allowed only in certain sectors (below) | Registrar; automatic route only where conditions are met | At least two designated partners, one resident in India |
| Branch office | FEMA Establishment regulations, 2016 | Only the activities the approval permits | An Authorised Dealer Category-I bank; the Reserve Bank in some cases | Staff of the foreign parent |
| Liaison office | FEMA Establishment regulations, 2016 | No. It may not undertake any commercial, trading or industrial activity | As for a branch office | Staff of the foreign parent |
A project office is a fifth, narrower route: a temporary office for executing a specific contract in India. It ends with the project.
A private limited company
The wholly owned or majority-owned subsidiary is the most common choice because it can do almost anything a domestic business can, it limits the parent's liability to its investment, and it is familiar to Indian customers, banks and employees.
What the Companies Act, 2013 requires
- Members and directors. A private company needs at least two members (section 3(1)(b)) and at least two directors (section 149(1)). The parent and a nominee can be the two members.
- A resident director. Every company must have at least one director who stays in India for at least 182 days during the financial year (section 149(3)). For a newly incorporated company the requirement applies proportionately to the part of the year after incorporation. This is often the first practical question for a foreign parent.
- Registered office. The company must have a registered office able to receive communications within thirty days of incorporation, and must file its verification with the Registrar (section 12).
- Commencement of business. A company with share capital must file a declaration that subscribers have paid for their shares within 180 days of incorporation before it starts business or borrows (section 10A).
- First board meeting. Within thirty days of incorporation, then at least four meetings a year with no more than 120 days between two meetings (section 173(1)).
One point is easy to miss. The relaxed rules for "small companies" (for example, one board meeting in each half of the calendar year under section 173(5)) do not help a foreign-owned subsidiary: the definition of a small company in section 2(85) excludes any holding or subsidiary company, whatever its size. The small-company thresholds were raised with effect from 1 December 2025, but that exclusion stayed.
The investment itself
Shares issued to a non-resident are foreign direct investment under the Foreign Exchange Management (Non-debt Instruments) Rules, 2019. In most sectors this is on the automatic route: no prior government approval, but the sector's cap and conditions must be checked first, and some sectors need approval. The company reports the issue of shares to the Reserve Bank on the FIRMS portal (form FC-GPR) within thirty days of allotment, and files an annual return on foreign liabilities and assets.
A limited liability partnership
An LLP is a body corporate with partners rather than shareholders. It suits some professional and services businesses because it is lighter to run: no board meetings in the company-law sense and fewer event filings.
- It needs at least two designated partners, and at least one must stay in India for at least 120 days during the financial year (section 7(1) of the LLP Act, 2008, as amended in 2021).
- Foreign investment in an LLP is permitted under the automatic route only in sectors where 100 per cent foreign investment is allowed on the automatic route and there are no investment-linked performance conditions. Check the sector before choosing the vehicle.
- Some counterparties, particularly lenders and larger customers, are more used to dealing with companies. That is a commercial point, not a legal one, but it often decides the matter.
Branch, liaison and project offices
These are not separate legal entities. They are places of business of the foreign company itself, set up under the Foreign Exchange Management (Establishment in India of a Branch Office or a Liaison Office or a Project Office or any other Place of Business) Regulations, 2016 and the Reserve Bank's master direction on the subject.
- Where to apply. The application (form FNC) goes to an Authorised Dealer Category-I bank. Some cases need the Reserve Bank or the government: applicants from certain neighbouring countries, and offices in sectors such as defence, telecom, private security, and information and broadcasting.
- Eligibility. The regulations set a financial track record for the parent: for a branch office, a profit-making record in the preceding five financial years and a net worth of at least USD 100,000; for a liaison office, three years and USD 50,000. A parent that does not meet these can apply with a letter of comfort from its own parent in some cases.
- Liaison offices are temporary and passive. Approval is normally for three years, with extensions possible. The office may represent the parent, promote trade and act as a communication channel, but may not earn income in India.
- Annual reporting. Branch and liaison offices file an annual activity certificate by 30 September each year with their financial statements.
A liaison office is a sensible first step when the parent wants to learn the market without trading. Once sales begin, a subsidiary is usually the better vehicle.
Tax: the new Act
The Income-tax Act, 2025 replaced the Income-tax Act, 1961 with effect from 1 April 2026. Among other changes it replaces the "previous year" and "assessment year" with a single "tax year". For structuring purposes the main points are unchanged in substance:
- A subsidiary incorporated in India is a domestic company and a resident; a branch is part of a foreign company and is taxed as such.
- Transactions between the Indian entity and its overseas group (services, royalties, cost recharges, loans) fall within the transfer-pricing rules and need contemporaneous documentation.
- Tax treaties can matter for the parent's own position, for example on dividends and fees for services.
Section numbers in the 2025 Act differ from the 1961 Act. When you read older guidance, check the current section before relying on it, and take tax advice on your own facts.
- Decide what the Indian presence will actually do in its first three years; the vehicle follows from that.
- A subsidiary needs a director resident in India for 182 days in the year. Plan who that will be.
- A foreign-owned subsidiary is never a "small company", so it follows the full board-meeting calendar.
- A liaison office cannot earn income. A branch can, but only within its approval.
The first year, in order
- Board resolution of the parent approving the investment and naming the signatories.
- Name reservation and incorporation through the Registrar's integrated form, with directors' identification numbers and digital signatures.
- Registered office verification and bank account opening; the share subscription is received from abroad through banking channels.
- Allotment of shares, the FC-GPR filing within thirty days, and the commencement-of-business declaration within 180 days.
- First board meeting within thirty days: statutory registers, auditors appointed as the Act requires, signing authorities, accounting policies.
- Tax, goods and services tax and employer registrations as the business needs them, then a compliance calendar for the rest of the year.
Questions to settle first
- Will the Indian entity sell to Indian customers, serve the group, or only represent it?
- Is the sector open to foreign investment on the automatic route, and with what cap?
- Who will be the resident director or designated partner?
- What will the parent need to see each month, and in which format?
- If the plan changes, how would this vehicle be closed or converted?
Write the answers down in one short options paper, and let the board decide on it. The decision and its reasons then sit on file, which is where a future investor or auditor will look first.
General information as at 25 September 2026, not advice on any particular case. Laws, rules and thresholds change; check the current text or ask your advisers before acting. This note is awaiting desk review (reviewer to be confirmed).