What Foreign Founders Should Know Before Starting a Business in India

Starting a business in India? India follows its own set of regulations, which can occasionally change in the middle of a match. It isn't a critique. This is simply the way the regulatory ecology functions. So, understanding the legal landscape is less about ticking boxes and more about figuring out how to move without missteps.

Because, you know what? India rewards those who prepare.

Let’s Start With the Business Structure

Making the straightforward but crucial decision of what type of corporation to register is the first step in starting a business in India. There's more to this than paperwork. It affects your control over operations, compliance, tax treatment, and even how the community views your business.

Here's a simple glance at the typical structures that foreign corporations take into account:

1. Private Limited Company

•     Two directors are needed, and at least one of them needs to be an Indian resident.
•     100% Foreign Direct Investment may be received automatically (depending on the sector).
•     Popular for IT, consultancy, and product-based businesses, a distinct legal identity
   

2. Liaison Office

•     Functions as a representative office
•     Cannot generate revenue or sign contracts in India
•     Often used for market research or partnership building
•     Requires RBI approval
   

3. Branch Office

•     Can engage in commercial activities (unlike a liaison office)
•     Still needs RBI nod
•     Heavily regulated, and taxed at rates applicable to foreign entities
   

4. Limited Liability Partnership (LLP)

•     Suitable for smaller operations or partnerships
•     FDI is allowed under certain conditions
•     Not ideal if you’re looking for equity investments
   

Now, here’s the part people overlook: the rules can feel familiar on paper, but the process of actual approval? That’s where local nuances start to matter.

Registrations and Approvals: Not Just Formalities
 

Once your structure is locked in, you’ll need to deal with a few authorities, most notably, the MCA and the RBI. These aren’t optional. No handshake deal can bypass them.

Here’s what’s generally required:

•     Incorporation Certificate via MCA portal
•     PAN (Permanent Account Number) and TAN from the Income Tax Department
•     GST registration if your revenue is expected to exceed the minimum threshold or if you're offering taxable services
•     Import Export Code (IEC) if you’re trading internationally
•     Shop and Establishment registration—even if you’re just opening a small local office

And remember, depending on the state your office is located in, you may be dealing with separate labour law registrations. India’s federal structure means that state rules sometimes add an extra layer of complexity.

FDI Policy: What You Can and Can’t Do

FDI in India isn’t one big green signal. It’s conditional. Some sectors allow 100% investment without any prior approval—that’s the automatic route. Others require a case-by-case green light from the Department for Promotion of Industry and Internal Trade (DPIIT).

Let’s say you’re in defense or media—expect to apply through the government route.
 

And even if you're under the automatic route, that doesn’t mean zero compliance. RBI filings, annual reporting, and KYC checks will follow you through the business life-cycle.

So yes, it's friendly—but not informal.

Taxes and Ongoing Legal Duties
 

Once you’re operational, you're on the hook for regular compliance. India has one of the more involved tax systems globally, and it’s taken seriously.
 

Here’s what you should stay on top of:

•     Annual filings with MCA (balance sheet, board reports, etc.)
•     Corporate tax returns
•     Transfer pricing reports if you're dealing with affiliated overseas entities
•     GST filings—monthly or quarterly, depending on your status
•     FLA (Foreign Liabilities and Assets) report to the RBI
   

Delays here don’t just attract fines—they can freeze your banking activity or even draw scrutiny from tax authorities. And trust me, nobody wants that, especially in your first year.

Final Thought

India’s legal system for business isn’t impossible to work with—it’s just particular. There’s a process. There are expectations. And while some things take time, others, when done right, move surprisingly fast.

The key is not skipping the “small” stuff. Because in India, that’s often where the big problems start.

PKP Consult provides tailored Business Set Up Services for global entrepreneurs entering the Indian market. With deep expertise in regulatory compliance, taxation, and financial structuring, we help clients from Singapore, the USA, Japan, Australia, and the UK establish their ventures smoothly and legally in India’s evolving business landscape.