Starting a Company in India: What You Need to Know

Starting a Company in India: What You Need to Know

India is one of the fastest-growing major economies in the world and continues to attract a strong flow of foreign direct investment (FDI). In fact, it’s considered one of the more stable markets globally, ranking 63rd out of 192 countries in the World Bank’s Ease of Doing Business 2020 report.

What makes India stand out even more is the diversity, not just in culture but in business-friendly policies too. With initiatives like Make in India, Startup India, and PLI schemes, the country is actively supporting entrepreneurs and investors at every step of their journey. Thanks to this growth momentum (India is now the 4th largest economy by nominal GDP), many global businesses are already setting up shop and thriving here.

So, if you’re considering doing business in India, here’s a quick guide on how to incorporate your entity and get started properly.

Incorporation of an entity suggests forming a new entity formally recognized by your state of incorporation. After you establish your business, it becomes a legal business entity distinct from you, or we can say the person who formed it. There are three regions every business entity should acknowledge-

• Distinctive element– An association should make its segments distinctive, which makes it contrast from other companies

• Descriptive element– This targets the type of activities and business an entity follows

• Legal ending– Any constituent that proves an entity’s existence in legal terms to succeed any claim is legal

Various Forms of Business

There are various forms of business in India, and an entrepreneur can choose to register their business in India.

• Public limited company—It is an association with at least 7 members, with no restriction on the transferability of shares or minimum capital requirements.

• Private limited company – It is an association holding a minimum of 2 and a maximum of 200 members and an ironclad restriction on the transferability of shares.

• Company limited by guarantee – It requires no share capital or shareholders; only members who act as guarantors can take part in contributing a nominal amount at the time of winding up of the company.

• Unlimited company – It is a company where the legal liability of the members or shareholders is not limited and incorporated with or without share capital or shareholders.

• Section 8 company – These are the limited companies established under the Companies Act and granted an exclusive license by the Government under Section 8 of the Companies Act. It is a non-profit organization that acquires numerous tax benefits, which are available under Section 80G of the Income Tax Act, 1961. They delight in a minimal stamp duty structure and do not require much share capital. Funding for such organizations comes from subscriptions or donations made to them.

• Limited liability partnerships (“LLP”)—In an LLP, the liabilities of all partners are limited to some extent.

Apart from the above, there are the following other entities which can also be entitled to undertake business activities in India:

• Associate company – It is a company that provides another company a significant portion of voting shares.

• Subsidiary company – A corporation holding more than 50% of shares in a company. It becomes part of the parent company to provide the parent with explicit synergies, especially taxation benefits, diversified risk, equipment, and property.

• Foreign company—It is an entity that is incorporated abroad but also holds a place in a domestic country by conducting any business activity in various specified manners.

• Liaison office – It functions as a representative office primarily set up to explore and understand the business and investment climate. To establish a liaison office in India, a profit-making track record during the immediately preceding three financial years in the home country and a net worth of not less than USD 50,000 or its equivalent is required.

• Branch office—This is a location other than the head office where business is conducted. A profit-making track record during the immediately preceding five financial years in the home country and a net worth of not less than USD 100,000 or its equivalent are required.

• Project office – To establish a project office in India, the project is funded directly by inward remittance and cleared by an appropriate authority.

The following prerequisites need to be followed while establishing an entity:

• Resilience – Align your goals with a proper configuration so as to support the growth cycle and development of the association.

• Liability – A Corporation carries the least amount of personal liability, since the law holds that it is its own entity.

• Taxation – In the early stages of incorporation, avoid double taxation. You can pay personal taxes, social security, and Medicare on your individual return for what you were paid throughout the year.

• Control—A board of directors is constructed to conduct inspections and audits to ensure that ethics and regulations are followed.

• Capital investment – Obtain outside or inside funding, such as selling stock or shares, or using personal credit.

• Licensing – Specific licenses and permits are required to register your association at the local, state, and federal levels.

Conclusion

India continues to be a hotspot for global business, thanks to its rapidly growing middle class, a vast pool of skilled, English-speaking talent, and competitive labor costs. These factors make it an attractive destination for companies looking to scale efficiently.

Incorporating a business in India also offers several advantages, such as an easier transfer of ownership, access to lower corporate tax rates compared to personal income, and more flexible rules around loss carry-forwards.

If you're planning to set up a business in India, we’re here to support you every step of the way. From choosing the right business structure to handling registrations, tax planning, advisory, and ongoing compliance, we offer end-to-end professional services tailored to your specific needs.

Our Mercurius Team can also assist you in various other services including bookkeeping, auditing, internal audit, trademark registration, tax audit, payroll compliances, management audit, STPI registration, statutory audit, income tax, tax planning, setting up of virtual office, direct taxes, service tax, Delhi value added tax, sales tax, company formation, business consultation, company registration / incorporation in India, corporate compliance, foreign branch/liaison office registration. For detailed discussion or assistance in compliance-related issues, kindly click here.