By Vinita Bahri Mehra
U.S. company interested in expanding its business operations to India
can form an agency, an association of persons, a liaison office, a
project office, a joint venture and/or a subsidiary in India.
An agency gives a U.S. company an indirect presence
in India. Under it, the U.S. enterprise appoints an Indian entity as
its agent and, depending upon the agency agreement, the agent can buy or
sell or provide any other service to the U.S. enterprise.
Association of persons
association of persons is a collection of different entities (e.g.,
individuals or companies) that join together for a common purpose. An
association of persons is formed by executing an agreement among the
participants. The association need not register with authorities in
India, but is a recognized entity for tax purposes.
liaison office collects information about possible market opportunities
and provides information about the U.S. company to prospective Indian
customers. It can promote export/import transactions and facilitate
technical collaborations between U.S. companies and Indian companies.
The liaison office cannot undertake any commercial activity, and cannot,
therefore, earn any income in India. Approval through an application
process from the Reserve Bank of India (RBI) is required to open such an
enterprises planning to execute specific projects can set up temporary
offices in India. The RBI grants general permission to foreign entities
to establish project offices, subject to specified conditions. Such an
office can only execute the project for which it was established.
a joint venture (the most sought-after option for U.S. companies
seeking to establish a presence in India), a U.S. company forms a
limited liability company (LLC) in India. This LLC partners with another
Indian company for its operations. To establish a joint venture in
India, U.S. companies should consider:
Choosing a local partner: An appropriate local partner can play a
significant role in overcoming various legal complexities and ensuring
Identifying a location: Important factors to consider when searching
for a location are availability of infrastructural services, financial
and tax incentives.
Negotiating: Before negotiating, the parties should enter into
confidentiality/non-disclosure agreements to protect strategic business
information to be exchanged for the joint venture operations.
States equity in Indian companies can be 100 percent, subject to any
equity caps prescribed by RBI for specific sectors (e.g., agricultural).
A subsidiary can be incorporated under the Indian Companies Act as a
private limited company or a public limited company. Both options offer
liability protection and have minimal capitalization requirements.
States companies might also consider investing in an Indian company
through an intermediate holding company in a tax-favorable jurisdiction.
Also, India has favorable tax treaties with these countries: Mauritius,
Singapore, Cyprus, Luxembourg and the Netherlands.
U.S. company planning to do business in India must develop a legal and
tax strategy to support its business plans and objectives. This strategy
should include due diligence concerning prospective partners and
specific conditions that may affect the company’s market prospects. It
is wise to seek experienced counsel before entering the Indian market.
Vinita Bahri Mehra is a director at Kegler Brown Hill & Ritter LPA, and chairs the Asia-Pacific practice.