Deciding on which countries to expand your business to can be a complex and difficult decision. As an aspiring entrepreneur, you might have heard of the lucrative business environment of India and might be wondering about whether you should choose to register new company in India. In this article, Tetra Consultants will provide 7 key considerations to take note of before choosing to register new company in India so that you may better understand this business phenomenon and make a more informed decision about whether you should register company in India. These considerations will be divided into 3 main sections – key types of business structures in India, key advantages of foreign company registration in India, as well as its disadvantages.
Types of Business Structures in India
Before even beginning to consider if you should set up a business in India, you must take note of the different types of business structures your firm can incorporate as. In this section, Tetra Consultants will cover the 3 main types of business structures:
1. One Person Companies
This business structure is most suitable for individual owners hoping to limit their liability. Unlike a sole proprietorship where the individual businessman holds personal responsibility for the firm’s liabilities and debts, under a one person company structure, personal liability is limited, similar to that of a corporation.
Additionally, this provides tax benefits such as a tax holiday for its initial 3 years, as well as greater benefits surrounding depreciation and the removal of taxes on dividend distribution. Meanwhile, business returns still have to be filed, whereas compliance with India’s Registrar of Companies (ROC) is limited.
2. Private Limited Companies
The private limited company’s business structure is frequently utilised by businesses generating large amounts of revenue with a high turnover. This is because of the variety of tax exemptions often granted to such private limited companies such as a tax holiday during initial 3 years under Startup India, as well as higher benefits on depreciation and many others. Much like one person companies, business tax returns are required to be filed. However, in contrast to one person companies, private limited companies face additional restrictions such as a requirement that ROC returns are filed, with an audit being mandatory as well.
3. Limited Liability Partnerships
This business structure is most commonly used for service oriented businesses or those with relatively low investment needs. This is because of the low cost of setting up a limited liability partnership, as well as the fact that there are no requirements for a minimum capital investment. While a minimum of two partners are required to run a limited liability partnership, there is no maximum cap placed on partners who can run the partnership. Additionally, the liability of each partner is limited to their individual contributions made. Much like the other types of business structures which can operate in India, the limited liability partnership obtains benefits on depreciation, while business returns and ROC returns have to be officially filed on an annual basis.
As such, before choosing to register new company in India, having a clear understanding of each of these business structures and the respective regulations which govern them is crucial to choosing the most suitable and appropriate one to fit the needs and interests of your own company. However, another important factor to consider as well is the advantages and disadvantages of foreign company registration in India.
Advantages of register new company in India
1. Growing economy with strong market potential
India has the second largest population in the world, with the 3rd largest GDP in the Asian region as well. It is thus no surprise that India is home to one of the largest and most diverse consumer markets in the world, providing a fantastic business opportunity for you to capitalise on to cater to this consumer demand. This is further bolstered by the economic support the Indian government has granted such as the encouragement of foregin direct investments (FDIs) into a wide range of sectors such as telecommunications, finance, retail, insurance, transportation etc. This has meant that the state of India’s economy is only growing larger and larger, with demand rising exponentially and business thriving.
In fact, India has signed onto 85 double tax avoidance agreements (DTAAs) and 42 free trade agreements (FTAs) with many countries across the globe, providing an even more business friendly environment where your business can not only lower costs by reducing the taxes it pays yearly, but also boost revenue by obtaining easier access to large consumers markets in China and Australia, thus maximising overall profits.
2. Low set up and operational costs
According to statistics by the Worldwide Cost of Living index in 2019, India has one of the world’s lowest consumer cost index, especially when it comes to key cities like Chennai and Bangalore, considered one of the two least expensive cities internationally. Additionally, average domestic airfares are significantly lower within India than other countries as well. This means that businesses can easily set up and operate in the country without having to worry too much about costs incurred.
Disadvantages of register new company in India
1. Lower receptiveness to foreign company registration in India
One major limitation, especially for foreign companies looking to set up in India, is the long duration of registration. For example, simply registering a limited liability corporation as well as the opening of a corporate bank account can take up to 4 months due to the sheer volume of paperwork and number of government approvals needed. Additionally, excessive bureaucracy in the Indian government means that many businesses have to expend even more time and resources liaising with official authorities on a regular basis for business approvals and obtaining of licenses.
2. Poor supporting resources for new businesses
According to statistics by the Global Competitiveness Report, India’s infrastructure is only 70th in the world due to its relatively underdeveloped state. This is further demonstrated in its electricity infrastructure, where India is ranked 103rd, due to frequent power cuts which actively disrupt business operations. Additionally, much of its transportation infrastructure such as roads, railways and airports are underdeveloped as well, thus limited connectivity across the country.
Navigating the country of India’s complex business climate might be a challenging process – a hassle to say the least. However, with key benefits regarding low operational costs and a business friendly environment outlined above, it is easy to see why many businesses would choose to set up in India. As such, Tetra Consultants hopes that this article has provided you a much better understanding about the 7 key considerations to keep in mind before you register new company in India so that you can truly decide on whether you should register new company in India yourself.
So, what are you waiting for? Contact us to find out more about the process of starting a business in India, and our dedicated and experienced team will respond within the next 24 hours. Tetra Consultants will not only empower you by helping to navigate the different regulations of India, but also aid in facilitating the registration of your company there while providing invaluable, nuanced insights into any potential challenges.