Starting a business in India

A business enterprise is an economic institution engaged in the production and/or distribution of goods and services in order to earn profits and acquire wealth. The scope of a business is very wide. It includes a large number of activities which may be classified into two broad categories i.e. Industry and Commerce. Production of goods is the domain of 'Industry' and distribution comes under 'Commerce'. Every entrepreneur aims at starting a business and building it into a successful enterprise. The term 'entrepreneur' means to undertake and pursue opportunities and to fulfill needs and wants of people through innovation. He/she innovates and combines resources in the form of men, materials and money and brings them together to make the business venture profitable. He/she is prepared to take risk and face challenges. Thus, innovation and risks are the two basic elements of a good entrepreneurship.
 
Types of Businesses
A business in India can be started in one of the following ways. These are also called the basic nature or legal entities of doing a business in India.

Additionally few more entities are available for operating business. Some of them are available only to Foreign investors/ companies and some to all. There are also specific guidelines that should be followed and approvals may need to be taken to establish these entities.

  • Wholly owned (100%) subsidiary company
    • Foreign companies can also to set up wholly owned subsidiary in sectors where 100% foreign direct investment is permitted under the FDI policy.
  • Joint venture company
    • Joint Venture companies are the most preferred form of corporate entities for Doing Business in India. There are no separate laws for joint ventures in India. The companies incorporated in India, even with up to 100% foreign equity, are treated the same as domestic companies. A Joint Venture may be any of the business entities available in India.
  • Branch Office
  • Foreign Branch Office
    • Foreign companies engaged in manufacturing and trading activities abroad are allowed to set up branch offices in India for the purposes of export/import of goods, rendering professional or consultancies services, R&D, promoting technical or financial collaborations, representing the parent company, acting as buying/selling agents, rendering services in IT and development of software, rendering technical support to the products supplied by the parent/group companies, foreign airline/shipping companies. Branch offices could be established with the approval of the government of India and may remit outside India profit of the branch, subject to RBI guidelines after payment of applicable Indian taxes.
  • Project Office
    • Foreign companies planning to execute specific projects in India can set up a temporary project/site offices in India for carrying out activities only relating to that project. The Government of India has now granted general permission to foreign entities to establish project offices subject to specified conditions.
  • Representative Office
  • Liaison Office
    • The role of Liaison Office is limited to collection of information, promotion of exports/imports and facilitate technical/financial collaborations. It cannot undertake any commercial activity directly or indirectly.
  • Development Centre
    • For the purpose of conducting any development of products or services.
  • Research Centre
    • To carry out research in a particular area
  • Sales Office
    • Sales office is established for selling and supporting various produt lines/ services of the company and donot have any development/ manufacturing activity associated with it.
  • Marketing Office
  • Vendor management Office
  • Procurement Office

All these entities are more of generally used terms/ offices rather than a legal entity. These offices needs to be one of the above listed company type to obtain a legal entity.
 
Which Business entity is right for me?
A business can be owned and organized in several forms. Each form has its own merits and demerits. The ultimate choice depends upon balancing the advantages and disadvantages of the various forms. The right choice is very crucial because it determines the power, control, risk and responsibility of the entrepreneur as well as the division of profits and losses.
 
Few factors that you should consider before making a choice of right business entity are:

  • The nature of business is the most important factor. Businesses providing direct services like tailors, restaurants and professional services like doctors, lawyers are generally organised as proprietary concerns. While, businesses requiring pooling of skills and funds like accounting firms are better organised as partnerships. Manufacturing organisations of large size are more commonly set up as private and public companies.
  • Scale of operations i.e. volume of business ( large, medium, small) and size of the market area (local, national, international) served are the key factors. Large scale enterprises catering to national and international markets can be organised more successfully as private or public companies. Small and medium scale firms are generally set up as partnerships and proprietorship. Similarly, where the area of operations is wide spread (national or international), company ownership is appropriate. But if the area of operations is confined to a particular locality, partnership or proprietorship will be a more suitable choice.
  • The degree of control desired by the owner(s). A person who desires direct control of business, prefers proprietorship, because a company involves separation of ownership and management.
  • Amount of capital required for the establishment and operation of a business. A partnership may be converted into a company when it grows beyond the capacity and resources of a few persons.
  • The volume of risks and liabilities as well as the willingness of the owners to bear it, is also an important consideration.
  • Comparative tax liability.