The entities that a foreign enterprise can set up in India can be either unincorporated or incorporated.

1. Incorporated Structures

1. The incorporated structures are as follows:

1. 1.1 Wholly Owned Subsidy (“WOS”)
• A wholly-owned subsidiary is a resident Indian company whose stock is entirely owned by its parent corporation. The Indian company can be a private limited company or a public limited company.
• A private company, being an Indian resident company has the freedom to carry out any operations in India (subject to the restrictions on certain activities such as defence and chit funds etc. imposed under India’s forex laws). A private company is regulated by the Ministry of Corporate Affairs in India along with the Reserve Bank of India (in case of WOS) and has to undertake many legal and regulatory compliances as compared to a Branch Office (“BO”) or Liaison Office (“LO“).
• Advantage: Despite the higher regulatory environment, the rate of corporate tax is much lower compared to a BO/LO, given that a WOS is a resident Indian company and is taxed at flat rate of 25%.
2. 1.2 Limited Liability Partnership (“LLP”)
• The LLP is another alternative corporate business structure that provides the benefits of limited liability of a company, but allows its members the flexibility of organising their internal management on the basis of a mutually arrived agreement, as is the case in a partnership firm. As compared to the WOS, the compliances are relatively lesser and the LLP offers higher internal flexibility.
• Advantage: 100% foreign direct investment is permitted in LLPs and therefore a foreign entity can completely own the Indian LLP.

2. Unincorporated Structures

1. The unincorporated structures are as follows:

1. 2.1 Liaison Office (“LO”)
• The LO is a representative office of an overseas entity and acts as a communication channel between the principal office of the LO and different businesses in India. The LO cannot undertake any commercial/trading/ industrial activity, directly or indirectly, and maintains itself out of inward remittances received from abroad through normal banking channel. The LO therefore cannot generate profits as it does not have any business activity of its own.
• In India, LO’s are set up only with the prior approval of the Reserve Bank of India (“RBI“).
• The RBI has prescribed the following activities as activities that a LO is permitted to undertake:
1. Representing the parent company / group companies in India.
2. Promoting export / import from / to India.
3. Promoting technical/ financial collaborations between parent / group companies and companies in India.
4. Acting as a communication channel between the parent company and Indian companies.
2. 2.2 Branch Office (“BO”)
• Similar to the LO, the BO is also set up with the prior permission of the RBI (routed through a local banker (AD Bank), however the scope of permissible activities that the BO can undertake is much wider. The BO can engage in commercial activities of its own and can operate on a cost plus model.
• RBI has prescribed the following activities that a BO can undertake in India:
1. Export/import of goods
2. Rendering professional or consultancy services
3. Carrying out research work in which the parent company is engaged
4. Promoting technical or financial collaborations between Indian companies and parent or overseas group company
5. Representing the parent company in India and acting as buying/ selling agent in India
6. Rendering services in Information Technology and development of software in India
7. Rendering technical support to the products supplied by parent/group companies and
8. Representing a foreign airline/shipping company.
3. 2.3 Trust
• A Trust is a relationship in which a person or entity holds a valid legal title to a certain property which is known as the Trust property, but is bound by a fiduciary duty to exercise that legal title for the benefit of any one or more individuals or group of individuals or organisations, who are known as the Beneficiaries. The Trust shall be always governed by the terms of the Written Trust agreement. Corporate Trusts in India are considered as private trusts regulated by the Indian Trusts Act, 1881 and are taxed at a flat rate of 30% plus surcharge and education cess if the income crosses INR 10,00,000. Trusts can avail rebate under the Income Tax Act.
• To create a Trust these steps are to be followed:
1. A trust for immovable property must be in writing in a non-testamentary document signed by the author or creator of the trust. Any person who is competent to contract can create a trust and therefore a company may be the author or trustee or beneficiary of a trust.
2. A trust is created when the person creating the trust, termed the author of the trust indicates with reasonable certainty by any words or acts about the trust property
3. The Act doesn’t prescribe any specific purpose for creation of trust. A trust can be formed for any purpose, provided such purpose is lawful.
4. The Trust Deed will have to be printed on stamp paper of due value and registered at a Sub-Registrar office after paying registration charges.
• Advantages:
1. No mandatory obligations as imposed on companies under the Companies Act, 2013.
2. Simpler process of registration.
3. A valid trust deed can be enforced by the court.
4. There is no limit on the number of authors, trustees or beneficiaries.
4. 2.4 Partnership
• Partnership can be defined as collective relationship between persons for the purpose of sharing profits. The essentials of a valid partnership are:
1. A contract is crucial to form a partnership
2. Maximum number of partners is 50
3. A business must be carried on by the partnership
4. There must be an objective to share profits
5. The business must be carried on by all the partners or by one or more partners on behalf of the others
• A partnership firm is not a separate and distinct entity from its partners. Partners are jointly and severally liable for the acts of other partners and of the firm. They are also personally liable to the extent of their assets. Partnership firms are taxed at a flat rate of 30% plus surcharge and education cess.
• The Partnership may be converted into a private limited company as per the Companies Act, 2013.

While these are the different structures that a foreign entity can consider, the following factors will need to be borne in mind before a decision is made with regard to the choice of entity to be set up:

• Tax structure
• Business requirement in India
• Feasibility of setting up and running the entity in India.