• Question

  • The most common business entity used by foreign investors in India is the locally incorporated company. Branches, sole proprietorships and partnerships are essentially closed to foreign companies. Foreign investors may participate in either public or private companies. Private companies must restrict the transfer of their shares, limit the number of shareholders to 50 and prohibit any invitation to the public to subscribe for shares.

    Public companies are those with more than 25 percent of their shares publicly owned; those that own more than 25 percent of the equity of a public company; those with a turnover of more than Rs 100 million in any one year.

    Public and private companies must register the memorandum and articles of association with a state registrar of companies.

    Foreign corporations may interact with Indian businesses in three other ways. The most common form of interaction is the licensing of technology, where no equity capital is involved. The foreign firm can sell its technology for a lump-sum payment and royalties based on sales. The second form of cooperation involves the direct purchase of designs and drawings. These forms of interaction are especially popular with the Indian government. They satisfy government policies designed to increase the amount of technology flow into the Indian economy. The third form of collaboration is joint venture arrangements which account for 15 to 20 percent of all foreign collaboration approved by the Indian government. The foreign firm may receive lump-sum and royalty payments for technology transfer as well as dividends.

    Representative or liaison offices may be opened in India with approval by the Reserve Bank of India. These offices cannot accept orders or sign contracts and no profits can be generated by this type of office. Branch office activities in India may result in legal liability being imposed directly on foreign home offices for business activities in India. Franchising arrangements in India are very rare.
    Thursday, March 1, 2007 7:45 AM

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