One country that is now becoming a global hub for various types of businesses, thanks to its growing economy, skilled workforce, start-up-friendly ecosystem, and much more. India’s economic growth is attracting business houses from around the world.
For foreign investors and companies, India offers a range of benefits and ease in regulatory requirements, making it a top choice. This is also supported by a World Bank report, which states that India is now among the top 10 countries for ease of setting up manufacturing units, leading many businesses to establish themselves in the country.
Whether you are testing the waters or planning a long-term investment in India, understanding the types of business entities available in India is the major and foremost step. Let’s start with the various business structures available in India for foreigners, which provide the necessary legal framework for conducting business in India.
1.Wholly Owned Subsidiary (WOS)
A wholly owned subsidiary is a company incorporated in India by foreigners, which is 100% owned by a foreign entity or individual. It operates fully under the name and structure of a private limited company in India. It is governed by the Companies Act 2013.
In India, there are two routes for foreign investment — the Automatic Route and the Government Route. Setting up a wholly owned subsidiary is only allowed for sectors under the automatic route of FDI. Underthe Automatic Route, no prior government approval is required; however, sectors such as telecom and defense fall under the Government Route and require approval before investment.
According to professionals, this structure is beneficial for foreigners who want to set up their business under their full control and are considering establishing long-term operations with the intention of repatriating profits.
Key features include:
- Profits can be repatriated to the parent company after fulfilling tax and compliance obligations
- It is a separate legal entity
- It has limited liability for shareholders
2.Joint Venture
As its name suggests, a Joint venture – which means business ventures work jointly to achieve great heights. Joint Venture is a strategic business partnership in which two or more entities, including a foreign company, combine their resources to achieve their business objectives. It’s a common way for foreign companies to enter the Indian market, which helps them leverage local knowledge and networks while mitigating the risks associated with a completely new market.
In a Joint Venture, when a foreign company partners with an Indian business, they share ownership and control based on mutual agreement.
Types of joint ventures for foreign companies in India:
The two options available for establishing a joint venture in India are: Contractual joint venture and Equity-based joint venture.
Foreign companies also need to be aware of the corporate structures that they can choose when working in India. Sometimes, a contractual joint venture is a better option than an equity-based joint venture. The choice of model of the joint venture is, of course, determined by the objectives that the partners have and also whether they intend their relationship to be long-term or short-term.
Key features include
- Its legal structure can be a private/ public limited company in India
- Requires a solid shareholder agreement filed with the regulatory bodies in India that states the share capital, profits, and decision-making
- JV can reduce the market entry risks when it is done with careful legal structuring
- RBI approval is mandatory
A Joint Venture is a popular way to enter a country where the legal and business environment is unfamiliar. While joint ventures can face several challenges—both regulatory and relationship-based—with the right guidance and experienced professionals who specialize in structuring businesses for foreign investors, these hurdles can be managed effectively.
3.Liaison Office (Representative Office)
A liaison office serves as a representative office, acting as a communication channel between the foreign parent company and Indian stakeholders. However, it cannot carry out commercial activities.
This structure is mainly used by foreigners in India for their brand presence, research, and to explore the market potential of India. They can also promote their parent company’s product and attend trade fairs for promotional purposes.
Most foreign businesses use this structure to test the market before establishing a full-fledged operation in India.
4.Branch Office and Project Office
A project office and a branch office represent two different types of business for foreign companies in India, each with distinct purposes and operational scopes:
A branch Office is an extension of a foreign company in India, allowing foreign companies to conduct business within India while maintaining their separate legal entity status and without forming a separate Indian company.
It enables you to conduct business activities in India, similar to those of the parent company, but on a smaller scale.
A Project Office is a temporary presence established to execute a specific project in India, and it’s not meant for regular commercial operations.
Let’s now understand the scope of activities allowed and not allowed under both offices.
Allowed activities for the Branch Office are as follows:
- Export/ Import of goods.
- Providing Professional or Consultancy Services.
- Promoting the Parent Company’s Products/Services.
- Acting as a Buying and Selling agent.
- Conducting Research Work.
- Representing the Parent Company in India.
Activities that are not allowed under the Branch Office are as follows:
- Retail Trading
- Manufacturing (unless in SEZ or under special approval)
Key Points:
- The Branch Office requires prior approval from the Reserve Bank of India (RBI)
- Income earned in India is taxable (taxation can be based on the DTAA signed between India and a particular country)
- It cannot carry out activities not permitted under the RBI norms
Allowed activities under the Project Office
All the activities are allowed only if they follow the following conditions:
- The project is secured from an Indian company
- The project is funded directly by foreign inward remittance or by a bilateral/multilateral international financing agency
- Or, the Indian company is permitted to fund the project under existing FEMA guidelines
Use Cases:
- Infrastructure or construction projects
- Engineering services
- Contract-based installations
Key Points:
- No separate RBI approval is required if conditions are met
- Exists only for the duration of the project
- Cannot undertake activities beyond the scope of the assigned project
- Must be closed after the project is completed
5. Limited Liability Partnership (LLP)
As its name suggests, limited liability means the flexibility of a partnership along with the benefit of limited liability.
It is a business structure that combines the benefits of both a partnership and a company, offering partners limited liability for business debts and obligations while allowing them to manage the business directly.
Setting up an LLP is a smart entry route for foreign companies seeking controlled risk and simplified compliance. And yes, FDI in LLPs is allowed under the automatic route, but with sector-specific restrictions. – 100% FDI-enabled sectors (like IT, consulting, R&D, etc.)
Why do foreign companies choose LLP in India?
| Benefit | Description |
| Limited Liability | Partners’ liabilities are limited to their agreed contribution. |
| No Minimum Capital | No mandatory minimum capital requirement. |
| Flexible Management | LLPs have fewer compliance burdens than private limited companies. |
| Separate Legal Entity | The LLP is a distinct legal entity from its partners. |
| Tax Advantages | LLPs are taxed like partnerships—no Dividend Distribution Tax (DDT). |
There is a disadvantage to LLPs in that they cannot issue shares, which may limit fundraising opportunities.
Structures and Their Governing Body
| Structure | Governed By |
| WOS | Companies Act, 2013 + FDI Policy (DPIIT) |
| Joint Venture | Combination of Companies Act + FDI Rules |
| Branch Office and Project Office | FEMA + RBI Master Directions |
| Liaison Office | FEMA + RBI Master Directions |
| LLP | LLP Act, 2008 + FDI Policy + FEMA |
Choosing the Right Structure: What to Consider?
Choosing the structure not only gives your business a professional image but also provides it with legal status and several other associated benefits. That’s why choosing the right business structure is crucial—it impacts everything from your tax obligations to operational flexibility and compliance requirements in India.
Once you understand all five types of business structures in India and their legal implications, the next step is to partner with the right partners who can assist you in the registration process, documentation, and regulatory compliance. You need professionals who are thoroughly familiar with the local laws.
At Mercurius, we simplify the journey of foreign companies in India through our expert team. We have assisted over 2,000 clients in navigating complex business compliance requirements and successfully establishing their businesses in India. We not only assist with business setup but also provide post-incorporation support, including accounting and bookkeeping, auditing in accordance with PCAOB and ICAI standards, filing income tax returns, and other advisory services.
If you are looking for a reliable Indian partner to set up your venture, you can easily book a free consultation with us for complete details.