Doing business in India: A comprehensive guide

Key Takeaways 

Understanding The Indian Market

• Diverse Market: India has a mix of old traditions and new technologies, with a growing middle class and large urban population offering many business opportunities.
  
  
• Consumer Behaviour: Indians are spending more on experiences, personalised products, and trendy items instead of traditional purchases.
  
  
• Key Economic Sectors: The top three key economic sectors are agriculture, animal husbandry and auto components.
  
  

Setting Up a Business in India

• Indian Company: You can create a fully owned subsidiary or joint venture.
  
  
• Foreign Company Entity: Options include Liaison Office, Branch Office, or Project Office.
  
  
• LLP (Limited Liability Partnership): Allows 100% foreign direct investment in certain sectors.
  
  

Registration Process

• Company Registration: Choose a unique name, gather documents, and register on the MCA portal.
  
  
• LLP Registration: Obtain digital signatures, reserve a name, and incorporate your LLP with the FiLLiP form.
  
  

Tips For Doing Business in India

• Avoid Stereotypes: Keep an open mind to avoid misconceptions.
  
  
• Work as a Team: Decisions are made collectively, so it’s important to understand the group dynamic.
  
  
• Adjust Your Schedule: Be ready for long work hours and flexible timing.
  
  
• Expect Payment Delays: Build strong relationships to manage common payment delays.
  
  
• Be Flexible: Plans can change quickly. Learn to adapt.

According to The Economic Times, India is set to become the world’s third-largest consumer market by 2026, overtaking Germany and Japan. Its massive consumer base of over 1.4 billion people, combined with the government’s focus on attracting foreign investment, makes it an ideal place to expand a business.

So, if you’re considering doing business in India, you are on the right track.

The country’s government is also prioritising sustainability-focused industries through schemes and incentives. International companies get a valuable opportunity when they expand their global operations and supply chains while contributing to a greener future.

However, before you can successfully enter the Indian market, you have to understand the market dynamics, business culture and legal framework. Building a local team, identifying target customers and managing finances effectively are also important.

We will explore the key aspects of doing business in India. How can you set up a business as a foreign investor? What are the eligibility requirements, permitted activities and the registration process? Continue reading below to learn more.

Understanding The Indian Market

India is a huge and varied market. Ancient traditions coexist with cutting-edge technology, and a growing middle class lives alongside large rural populations. This makes it a difficult but exciting place for businesses.

To understand India, we need to look at its different parts: the people, the economy and how people spend their money. Let’s start with the basics.

Consumer Behaviour 

Indians are changing how they spend money. Their priorities have changed as they earn more and are exposed to new knowledge. They are less interested in traditional purchases like homes and more focused on enjoying life through experiences, personalised items and services that save time.

Here are shopping behaviours in India you should be aware of:

• Desire to stay trendy: Indian consumers are increasingly driven to shop by the desire to stay fashionable. Over 60% of people surveyed admitted to buying something new in the past year, not because they needed a replacement, but simply because it was trendy and they wanted to upgrade their style.
  
  
• Preference for customised products: Consumers in the country now prefer personalised products. While mass-produced items have traditionally dominated the market, there’s a rising demand for products tailored to individual tastes and needs.

Key Economic Sectors 

According to Invest India, here are the country’s top 3 key economic sectors:

• Agriculture and Allied Sector: India is the world’s top milk producer supplying 24% of the global milk supply. They are also the leading millet producer globally, cultivating it on 15.48 million hectares. Moreover, they have a substantial number of organic farmers cultivating 5.91 million hectares of organic farmland.
  
  
• Animal Husbandry and Dairying: India is the world’s top buffalo meat producer, the second largest goat meat producer and the third largest egg producer. The Indian poultry industry alone was valued at $30.46 billion in 2023.
  
  Foreign investors can also fully own food processing businesses in India without prior government approval.
  
  
• Auto Components: The country’s auto component industry is projected to reach a value of $300 billion by 2026. Every year, they export $20.1 billion worth of auto components, ​​contributing 2.3% to India’s overall economy.

Setting Up a Business in India 

Now that you know the basics of the Indian market, it’s time to understand how to start a business in India. As a foreign investor, you have several options:

Incorporate an Indian Company

You can establish a fully owned subsidiary or a joint venture as a private or public limited company, following the Companies Act of 2013.

Set Up a Foreign Company Entity 

If you establish a presence in India without incorporating a local company, you can set up a foreign company entity. There are three primary options:

• Liaison Office: Primarily acts as a representative office for your parent company, facilitating communication and market research.
  
  
• Branch Office: Engages in commercial activities like exporting, importing, consulting or research on behalf of the parent company.
  
  
• Project Office: Specifically designed for executing projects within a defined timeframe.

Form a Limited Liability Partnership (LLP)

LLPs are governed by the LLP Act of 2008. Foreign Direct Investment (FDI) is permitted in LLPs operating in sectors allowing 100% FDI under the automatic route, provided that no specific performance conditions are linked to FDI.

Remember you need at least two partners with no upper limit. Importantly, one partner must be an Indian resident. Additionally, the LLP must designate at least two partners to handle day-to-day operations and ensure compliance with LLP laws and regulations.

How To Start a Business in India: Eligibility and Permitted Activities

When you establish a foreign company in India, the specific requirements and permitted activities will differ depending on the chosen entity type: Liaison Office (LO), Branch Office (BO) or Project Office (PO).

Let’s take a closer look at the eligibility criteria and permitted activities:

Setting Up a Liaison Office (LO) 

Eligibility 

To establish a Liaison Office (LO) in India, your company must have a proven profit track record for the past three years and a net worth of at least US$50,000.

Permitted Activities

Bear in mind that LOs cannot engage in commercial activities. Their main jobs are to learn about the Indian market, tell people about the company and its products, and help set up things like exporting, importing or sharing technology with Indian companies. They cannot generate any income from its operations in India.

Setting Up a Branch Office (BO)

Eligibility

Establishing a Branch Office (BO) requires a larger investment. Your company must show profitability for the past five years and have a net worth of at least US$100,000.

Permitted Activities 

Since BOs are considered an extension of a foreign company in India, you can do a wider range of activities. These include importing and exporting goods, offering professional advice, conducting research and working with Indian companies on technology or finance projects.

BOs can also represent their parent companies in India, buy and sell products, provide IT and software services, and offer technical support for products made by the parent company.

There are special rules for BOs in Special Economic Zones (SEZs). These businesses can manufacture and provide services, but only if:

• Their industry is allowed to have 100% foreign ownership.
  
  
• They follow Indian company laws.
  
  
• They operate independently.

Setting Up a Project Office (PO)

Eligibility

As of writing, there are no specific financial criteria.

Permitted Activities

A PO is set up solely to complete a specific project in India. It cannot do anything else besides work on that project.

How To Register a Company in India

You can start the registration process once you meet India’s company registration criteria, like a foreign company planning to open a branch or subsidiary.

But before you take the necessary steps and paperwork, you determine the most suitable company structure for your business. The primary options in India are:

As a Company

To understand how you can register a company in India, follow these steps:

Step 1: Check The Company Name

According to the Companies Act 2013 and the Companies (Incorporation) Rules, 2014, your company name must not:

• Be too similar to any existing company names.
  
  
• Be a plural form of an existing name.
  
  
• Use different letter cases, spacing, or punctuation to mimic an existing name
  
  
• Combine parts of an existing name.
  
  
• Be a translation of an existing name.
  
  
• If your proposed name includes words like ‘Bank,’ ‘Insurance,’ ‘Stock Exchange’ or ‘Mutual Fund,’ you’ll need approval from the relevant regulatory bodies.
  
  

Check name availability and find alternatives here.

Step 2: Gather Required Documents 

Make sure you have the following documents:

• Digital Signature Certificate (DSC): An electronic signature used to verify your identity when submitting online documents. It’s required by law.
  
  
• Director Identification Number (DIN): If you plan to be a director of the company, you’ll need a unique DIN. You can obtain this number by completing a specific form.
  
  
• Memorandum of Association (MoA): This legal document outlines your company’s purpose and shareholders. Your company cannot operate outside the scope defined in the MoA.
  
  
• Articles of Association (AoA): This document establishes your company’s internal rules and regulations as required by law.

Step 3: Register The Company on the MCA Portal

Once you have all the necessary documents, you can set up an account on the Ministry of Corporate Affairs (MCA) portal. You’ll need a Director Identification Number (DIN). After creating your account, you can access the SPICe+ form, which you’ll need to complete and submit along with the required documents.

You should propose two names for your company in the first part of the SPICe+ form. Your chosen name needs to be unique and comply with specific rules. If your proposed name is rejected, start the process again with new suggestions.

Once a name is approved, you have 20 days to complete the rest of the SPICe+ form. This part requires company and director details, supporting documents and your digital signature.

Step 4: Receive the Certificate of Incorporation 

Once your completed application and required documents have been submitted, the Registrar of Companies will review them. After verification, they will issue a Certificate of Incorporation for your company.

This certificate will include your company’s PAN (Permanent Account Number) and TAN (Tax Account Number) assigned by the Income Tax Department. You will also receive an email with electronic copies of these documents.

As an LLP

For LLPs, here is a step-by-step guide to the registration process:

Step 1: Get a Digital Signature Certificate (DSC) 

Before you form your LLP, all designated partners must obtain a Digital Signature Certificate (DSC). This electronic signature is important because all LLP documents are filed online.

You can get your DSC from a government-approved certifying agency. The cost varies depending on the agency. Make sure that you get a Class 3 DSC.

Step 2: Obtain a Designated Partner Identification Number (DPIN) 

Each designated partner of your LLP needs a unique DPIN. Fill out Form DIR-3 and attach copies of your Aadhaar and PAN cards. A professional like a Company Secretary, Chartered Accountant or Cost Accountant must sign the form. Only individuals can be designated partners, not companies or other legal entities.

Step 3: Reserve Your LLP Name

Before officially registering your LLP, you need to reserve a unique name. You can do this by filing a RUN-LLP form. To increase your chances of name approval, use the free name search tool on the MCA portal to check for similar names.

The government will approve your name if it’s not objectionable and doesn’t resemble an existing business name or trademark. If your initial name is rejected, you can resubmit the form within 15 days with corrections.

You can suggest two potential names. Once approved, you have three months to complete the LLP registration process.

Step 4: Incorporate Your LLP 

To officially form your LLP, complete and submit the FiLLiP form to the Registrar of Companies in the state where your main office will be located. This form includes several sections and requires a specific fee.

If any of your designated partners don’t have a DPIN, you can apply for it in the same form, but this option is limited to two people.

You can include your chosen LLP name in the FiLLiP form if you haven’t reserved it. If approved, the name will be officially assigned to your LLP.

Step 5: Create and File the LLP Agreement 

In India, the LLP Agreement outlines the rights and responsibilities of each partner and the relationship between the partners and the LLP itself. You should file this agreement using Form 3 on the MCA portal within 30 days of incorporating your LLP.

Take note that the agreement should be printed on stamp paper, which varies by state.

Tips For Doing Business in India

Understanding a country’s culture and business practices is a must for successful international ventures.

India is increasingly seen as a major economic force, making it attractive for businesses. While there are opportunities to be found, it’s important to recognise that cultural differences can pose challenges for foreign companies entering the Indian market.

Even if you have your business strategy covered, overlooking cultural nuances can have severe consequences. These oversights can undermine trust, harm your company’s image, jeopardise deals or even lead to business failure.

To avoid these mistakes, here are the top business tips when doing business in India:

Avoid Stereotypes

You likely have preconceived notions about India shaped by media or limited personal experiences. It’s best to shed these stereotypes as they can hinder your understanding of the country and its people.

Approach India with an open mind to avoid making inaccurate judgments about individuals or situations.

Work as a Team

In India, people usually make decisions together. You’ll be dealing with groups, not just one person. Everyone’s opinion matters so it’s important to reach an agreement. Also, knowing who’s in charge will help you understand how things work.

Adjust Your Schedule

Indian work hours are different from what you might be used to. You might find cases where there is no ‘9-5.’ Expect long days and blurred lines between work and personal life. People often work late and on weekends.

Be prepared for early morning activities and late dinners. Business meetings can happen at any time of day. Be flexible with your schedule to accommodate Indian business practices.

Expect Payment Delays

Expect late payments when doing business in India. It’s common for payments to take longer than expected. To minimise risks, build a strong relationship with your business partner before expanding operations.

While payment delays can happen due to complex business networks, it’s rare for Indian buyers to avoid paying debts.

Be Ready for Changes

Flexibility is key when doing business in India. Plans can change quickly, and meetings might be cancelled or delayed with little notice. This is normal in Indian culture, and people accept unexpected events. Foreigners often find this frustrating, as they expect more control over their schedules.

Final Thoughts

Strong economic track record, low operational costs, and diverse market—India has everything a foreign company needs to succeed. The country’s prime location also serves as a bridge to both Asian and worldwide markets.

Moreover, Prime Minister Narendra Modi introduced the Make in India initiative in 2014 to boost manufacturing within the country and reduce reliance on imports. The goal was to position India as a leading global manufacturing hub.

This program aimed to create jobs and develop skills across various industries. To attract foreign investment, India has opened its doors to countries like China, France, Germany, Israel, Japan, Korea, Russia, Taiwan, the UK and the US.

However, if you’re thinking about entering the Indian market, managing your finances as you settle your business ventures can be challenging. Fortunately, Instarem can be your ideal first step:

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Grow your business with Instarem. Sign up now and manage your business finances easier with an international business account—no matter where you are.

FAQs

What are the main benefits of doing business in India? 

India has a growing economy, low costs, a large market and a skilled workforce, making it a great business place.

How can I be the best business in India?

To be the best, focus on understanding and meeting customer needs, maintaining high-quality standards, building strong local partnerships, staying adaptable to market changes and investing in innovation and technology. You should also give back to the community. Be different and better than your competitors.

What are some common mistakes foreign businesses make in India?

Not understanding local laws, ignoring cultural differences and not having a long-term plan can cause problems.

Disclaimer: This article is intended for informational purposes only. All details are accurate at the time of publishing. Instarem has no affiliation or relationship with the products or vendors mentioned.