A subsidiary in India: what is the best legal structure for my company?

Before you start a business in India, you want to make sure that you choose the legal structure that will suit your goals and keep your compliance obligations and taxes to a minimum. India has three types of legal structures: Office structures, Partnership structures and Limited structures. Each of these legal structures has its own advantages and limitations.

1. Office structures

All Office structures are lightweight entities that are considered an extension of the foreign parent company. The legal liability of these three business forms lies with the foreign parent company. The Indian tax authorities consider Office structures as “foreign companies”.

Liaison Office
The Indian central bank describes such an establishment as “an office that may only undertake connecting activities”, such as gathering information about the market, promoting exports to or imports from India or setting up financial collaborations between the head office and Indian companies. A liaison office may not generate turnover in India and may not produce goods or provide services. A liaison office is one of the most popular legal forms among international investors.

Branch Office
A branch office offers more possibilities than a liaison office. It can carry out commercial transactions such as import and export, provide consultancy services or provide technical support. Entities that have been profitable for five years and have a net worth of more than USD 100,000 can use this route to enter the Indian market.

Project Office
Project offices are set up to carry out a specific assignment in India. For example, you win an infrastructure project with your foreign company and open an office to carry out that task (and thus avoid a permanent establishment). Before you can open a project office, the project must be approved by an official body in India or be financed by an international organization such as the World Bank. The financing of the project therefore comes either from abroad or from the Indian body that awarded the project.

2. Partnerships

The Partnership structures are forms of cooperation between at least two partners, in which the partners are personally liable. According to Indian law, there are two types of partnerships: ‘partnership at will’ and ‘particular partnership’. In a partnership at will, a contract is concluded between the partners in which the duration of the partnership is not fixed. In a particular partnership, a partnership is concluded within a specific company.

Limited Liability Partnerships (L.L.P.)

In 2008, a new form of partnership was introduced in India: the Limited Liability Partnership (LLP). This form combines aspects of the Partnership and a Private Limited (Pvt. Ltd.). For example, the liability is limited with an LLP. The LLP is interesting for small to medium-sized service companies, given the tax advantages of this legal form.

Joint Venture
Two parties can also choose to set up a Joint Venture (JV). The L.L.P. and the JV are very similar, but there are differences. For example, a JV is usually formed for a certain period, or for a specific purpose and has a more flexible structure than an L.L.P., because the terms of a joint venture can vary depending on the specific needs of the partners.

3. Limited structures

There are two types of limited structures: the Private Limited (Pvt. Ltd.) and the Public Limited (PLC). The Pvt. Ltd. is the most chosen form of business by foreign companies and investors in India. In certain sectors, the establishment of a Pvt. Ltd. requires prior permission from the Reserve Bank of India. A PLC is the legal form for listed companies.

Want to set up your own entity in India? Our guide for CFOs with operations in India provides a comprehensive overview of the steps you need to take to properly start your operations in India. In addition, this guide is full of advice and tips for other challenges that CFOs in India will certainly face, such as transfer pricing and dividend repatriation to Europe.