Questions to Ask Before Starting a Company in India

India offers significant opportunities for foreign companies seeking access to a large consumer market, skilled workforce, technology ecosystem and expanding manufacturing and services sectors.

However, starting a company in India requires much more than simply completing company registration.

Before incorporating an Indian entity, foreign investors should determine the appropriate market-entry structure, permitted business activities, foreign ownership, funding requirements, tax implications, location, workforce requirements and ongoing regulatory compliances.

Making these decisions before incorporation can prevent costly restructuring later.

Foreign companies planning their Indian operations can also refer to our India Market Entry Consulting Services for assistance with entry strategy, entity selection, FDI, FEMA, tax and regulatory matters.

10 Important Questions Before Starting a Company in India

Question	Why It Matters
Which business structure should be used?	Determines ownership, liability, control and compliance
Is foreign investment permitted in the proposed sector?	FDI caps and approval requirements may apply
What activities will the Indian entity undertake?	Affects entity selection, licences and taxation
Should India operations be wholly owned or shared with a partner?	Determines control and commercial risk
How much investment will be required?	Impacts funding and business planning
How will the Indian company earn revenue?	Influences tax, GST and transfer pricing
Where should the business be located?	Affects employees, infrastructure and operating costs
What registrations and licences are required?	Sector and activity-specific approvals may apply
What ongoing compliances will apply?	Determines annual operating and compliance burden
What is the long-term India strategy?	Influences entity choice, scaling and eventual exit

1. Which Business Structure Should We Choose in India?

This is one of the most important decisions to make before starting a business in India.

A foreign company does not necessarily need to incorporate a subsidiary in every situation. The appropriate structure depends upon the proposed activities, duration of operations, ownership requirements and commercial objectives.

Common India-entry structures include:

• Wholly Owned Subsidiary;
• Joint Venture;
• Branch Office;
• Liaison Office; and
• Project Office.

Wholly Owned Subsidiary

A Wholly Owned Subsidiary in India is generally suitable where a foreign company wants a long-term commercial presence and maximum ownership and operational control.

The Indian subsidiary is a separate legal entity and can undertake permitted commercial activities, employ personnel, enter contracts and generate revenue.

Joint Venture

A Joint Venture in India may be considered where the foreign investor wants to work with an Indian or another strategic partner.

A partner may contribute:

• local market knowledge;
• distribution;
• customers;
• licences;
• technology;
• manufacturing capabilities;
• infrastructure; or
• industry relationships.

Branch Office

A Branch Office in India may be considered by eligible foreign companies for specified permitted activities under the applicable FEMA/RBI framework.

Unlike a subsidiary, a Branch Office is an extension of the foreign company rather than a separate Indian legal entity.

Liaison Office

A Liaison Office in India is generally suitable for activities such as representation, communication, market research and promotion of the foreign parent company’s business.

It is generally not permitted to undertake commercial or income-generating activities in India.

Project Office

A Project Office in India may be suitable where a foreign company has secured a specific project in India and needs a temporary presence for executing that project.

Foreign investors comparing these structures can refer to our detailed guide on Liaison Office vs Branch Office vs Wholly Owned Subsidiary.

2. Is Foreign Investment Permitted in Our Proposed Business Sector?

Before incorporating an Indian company, a foreign investor should determine whether foreign investment is permitted in the proposed business activity and under what conditions.

India permits up to 100% foreign investment under the Automatic Route in many sectors. However, the position varies depending upon the sector and proposed activities.

The investor should examine:

• applicable FDI sectoral cap;
• Automatic Route or Government Route;
• sector-specific conditions;
• prohibited activities;
• minimum capital or other conditions, where applicable;
• beneficial ownership restrictions; and
• requirements of sector regulators.

This analysis should ideally be completed before incorporating and funding the Indian company.

Official Reference: Department for Promotion of Industry and Internal Trade – Foreign Direct Investment Policy.

3. What Activities Will the Indian Company Actually Undertake?

The proposed business activities should be clearly identified before selecting and incorporating the entity.

For example, will the Indian company undertake:

• software development;
• IT or IT-enabled services;
• consulting;
• trading;
• manufacturing;
• import and distribution;
• e-commerce;
• marketing support;
• research and development;
• engineering;
• Global Capability Centre activities; or
• after-sales services?

The answer can affect:

• FDI eligibility;
• company objects;
• GST;
• Import Export Code;
• sector-specific licences;
• transfer pricing;
• tax treatment;
• customs;
• labour requirements; and
• location selection.

Foreign companies should therefore avoid incorporating a company first and deciding the operating model later.

4. Should the Indian Company Be Wholly Owned or Should We Have a Local Partner?

Foreign investors should decide whether they need full ownership or whether an Indian partner would add strategic value.

A Wholly Owned Subsidiary may be preferable where the foreign parent wants:

• complete economic ownership;
• greater management control;
• protection of intellectual property;
• common global processes;
• control over employees and technology; and
• full participation in future growth.

A Joint Venture may be preferable where an Indian partner provides:

• distribution networks;
• customer relationships;
• licences;
• sector expertise;
• manufacturing capacity;
• land or infrastructure; or
• local market knowledge.

Where both options are being considered, refer to our guide on Subsidiary vs Wholly Owned Subsidiary in India and our Joint Venture Registration in India page.

5. How Much Investment Will Be Required?

Foreign investors should prepare an India business plan before incorporation.

The analysis should consider both the initial investment and the funding required until the Indian business becomes self-sustaining.

Typical expenditure may include:

• incorporation;
• office premises;
• factory or warehouse;
• machinery;
• employees;
• technology;
• professional services;
• regulatory registrations;
• marketing;
• travel;
• working capital;
• inventory;
• software;
• accounting and payroll; and
• ongoing compliance.

The business should preferably prepare projected:

• Profit & Loss Account;
• Balance Sheet;
• cash-flow statement;
• employee costs;
• capital expenditure; and
• working-capital requirements.

This helps determine the amount and timing of capital to be brought into India.

6. How Will the Indian Company Be Funded?

Foreign companies should decide the funding structure before remitting money to India.

Common funding possibilities may include:

• equity share capital;
• permitted debt funding;
• internal accruals; and
• other instruments permitted under applicable Indian regulations.

Equity investment by a foreign shareholder is subject to the applicable FEMA and FDI framework.

Important matters may include:

• permitted investment route;
• pricing;
• mode of remittance;
• issue of securities;
• timelines;
• Form FC-GPR;
• reporting of subsequent share transfers;
• beneficial ownership; and
• Foreign Liabilities and Assets reporting, where applicable.

Official Reference: Reserve Bank of India – Master Direction on Foreign Investment in India.

Funding should therefore be planned before money is transferred to the Indian entity.

7. How Will the Indian Company Earn Revenue?

The proposed revenue model should be clear before starting the Indian business.

For example, will the Indian company:

• sell products to Indian customers;
• provide services to Indian customers;
• provide captive services exclusively to the foreign parent;
• manufacture products for export;
• distribute imported products;
• earn software or subscription revenue;
• receive management/service fees; or
• operate as a cost-plus service provider for group companies?

The revenue model affects several regulatory and tax matters.

These may include:

• GST;
• corporate income tax;
• withholding tax;
• transfer pricing;
• customs;
• Permanent Establishment considerations;
• intercompany agreements; and
• invoicing.

Where the Indian entity will transact with its foreign parent or other associated enterprises, the proposed transfer pricing model should preferably be evaluated when the operating model is designed.

8. What Will Be the Relationship Between the Indian Company and Foreign Parent?

A foreign parent and its Indian subsidiary are separate legal entities.

Their commercial relationship should therefore be properly documented.

Depending upon the business model, agreements may be required for:

• services;
• sale or purchase of goods;
• software;
• intellectual property;
• management support;
• technical services;
• loans;
• cost sharing;
• secondment of employees; or
• other related-party transactions.

Cross-border transactions between associated enterprises may be subject to Indian transfer pricing regulations and should generally comply with the arm’s-length principle.

Foreign groups should also clearly determine:

• which entity owns intellectual property;
• who signs customer contracts;
• which entity bears commercial risk;
• who employs staff;
• how the Indian entity will be compensated; and
• what authority Indian personnel will have.

These issues can have significant tax and transfer pricing implications.

9. Where Should We Locate the Indian Business?

India is a large market and location should be selected according to the business model rather than simply choosing the largest city.

Factors to evaluate include:

• availability of skilled employees;
• salary levels;
• proximity to customers;
• office rentals;
• manufacturing infrastructure;
• ports and logistics;
• airports;
• vendor ecosystem;
• state incentives;
• power and utilities;
• industrial land;
• quality of infrastructure; and
• access to management talent.

For example, technology and service operations may consider cities such as:

• Bengaluru;
• Hyderabad;
• Pune;
• Chennai;
• Delhi NCR;
• Mumbai; and
• other emerging technology locations.

Manufacturing businesses may evaluate different industrial states and clusters based upon their product, supply chain and logistics requirements.

The most appropriate location therefore differs for each foreign investor.

10. What Registrations and Licences Will Be Required?

Company incorporation is only one part of setting up a business.

Depending upon its activities, an Indian company may require registrations or approvals relating to:

• Permanent Account Number (PAN);
• Tax Deduction Account Number (TAN);
• GST;
• Import Export Code;
• Shops and Establishments;
• Professional Tax;
• EPFO;
• ESIC;
• factory registration;
• pollution and environmental approvals;
• sector-specific licences;
• food licences;
• legal metrology;
• trade licences; and
• other state or local approvals.

The applicable registrations should therefore be mapped according to the proposed business activities and location.

New companies are incorporated through the Ministry of Corporate Affairs’ SPICe+ framework, which integrates incorporation with several related services.

Official Reference: Ministry of Corporate Affairs – SPICe+ Incorporation and Allied Matters.

11. What Will Be Our Tax Structure in India?

Tax planning should be undertaken before beginning operations rather than after transactions have already taken place.

Depending upon the business model, important matters may include:

• corporate income tax;
• GST;
• withholding tax;
• transfer pricing;
• customs duties;
• tax treaty benefits;
• royalty;
• technical service fees;
• interest payments;
• employee taxation;
• Permanent Establishment exposure; and
• repatriation of profits.

Foreign companies should also review whether proposed intercompany arrangements create Indian tax or withholding obligations.

The tax implications can differ significantly depending upon whether the investor uses:

• a subsidiary;
• Branch Office;
• Liaison Office;
• Project Office; or
• other operating arrangement.

12. What Employees Will the Indian Business Need?

Foreign investors should prepare an employee plan covering:

• number of employees;
• roles;
• salary levels;
• senior management;
• local hiring;
• expatriates;
• payroll;
• employee benefits; and
• statutory employment compliance.

Where foreign nationals will work in India, the company should also evaluate applicable:

• visa requirements;
• employment arrangements;
• tax obligations;
• social security requirements; and
• registration requirements.

Employment costs can form a significant part of the India operating budget and should be included in the business plan.

13. What Ongoing Compliances Will Apply After Incorporation?

Incorporating an Indian subsidiary is only the beginning.

After incorporation, the company may have recurring requirements relating to:

• Companies Act;
• Registrar of Companies;
• Board Meetings;
• Annual General Meeting;
• statutory audit;
• financial statements;
• income tax;
• TDS;
• GST;
• FEMA;
• FDI reporting;
• transfer pricing;
• payroll;
• EPFO;
• ESIC; and
• sector-specific regulations.

Foreign companies should therefore consider not only incorporation costs but also the annual cost of maintaining the Indian entity.

For a detailed overview, refer to our Foreign Subsidiary Compliance in India guide.

You may also refer to Post-Incorporation Compliances for Wholly Owned Subsidiary.

14. Do We Understand the Indian Market and Competition?

Even a properly structured company may fail commercially if the investor has not adequately evaluated the Indian market.

Before making substantial investment, the foreign company should analyse:

• market size;
• customer profile;
• price expectations;
• competitors;
• distribution channels;
• localisation requirements;
• regulatory barriers;
• product-market fit; and
• expected sales cycle.

For companies that want to test the Indian market before making a substantial investment, alternative approaches may include:

• market research;
• distributor appointment;
• local business partners;
• Liaison Office, where appropriate; or
• phased market entry.

Foreign companies considering a distribution-led entry can refer to our Distributor Appointment Services in India.

15. What Is Our Long-Term India Strategy?

The company structure should support the investor’s long-term objectives.

Before incorporation, management should consider questions such as:

• Is India a test market or strategic long-term market?
• Will the company manufacture locally?
• Will the Indian operation serve only India or global customers?
• Will India become a regional hub?
• How many employees are expected in three to five years?
• Is a manufacturing facility planned?
• Will further investors be introduced?
• Is an acquisition likely?
• Will intellectual property be developed in India?
• How will profits eventually be repatriated?

A company designed only for immediate requirements may become inefficient if the Indian business expands significantly.

Therefore, the legal, tax and operational structure should be aligned with the company’s medium and long-term India strategy.

16. What Happens If We Later Decide to Exit India?

Exit planning may not appear important when starting a business, but it should still be considered.

A foreign investor may eventually:

• sell its shares;
• introduce another investor;
• sell the Indian business;
• merge the company;
• repatriate remaining funds; or
• close the company.

Each option can involve company-law, FEMA and tax implications.

A company cannot simply stop operating without completing the required regulatory process.

For more information, refer to our guide on Closure of a Subsidiary Company in India.

Pre-Incorporation Checklist for Foreign Companies

Before starting a company in India, foreign investors should ideally confirm the following:

• proposed business activities have been identified;
• appropriate India-entry structure has been selected;
• FDI eligibility has been checked;
• ownership structure has been finalised;
• Indian and foreign directors have been identified;
• initial investment requirement has been estimated;
• funding structure has been decided;
• India location has been selected;
• customer/revenue model has been determined;
• intercompany arrangements have been planned;
• tax implications have been reviewed;
• transfer pricing model has been considered;
• required licences and registrations have been identified;
• employee requirements have been estimated;
• ongoing compliance costs have been considered; and
• long-term India strategy has been agreed.

Addressing these questions before incorporation can substantially reduce the need for restructuring after business operations have commenced.

Should a Foreign Company Incorporate Immediately?

Not necessarily.

A foreign company should first determine whether establishing an Indian legal entity is commercially necessary.

If the objective is only to understand the Indian market or identify potential customers or distributors, other approaches may sometimes be considered before making a substantial investment.

However, where the foreign company intends to:

• undertake long-term commercial activities;
• employ personnel;
• contract directly with customers;
• establish manufacturing;
• provide local services;
• own substantial Indian assets; or
• build a scalable Indian operation,

an incorporated subsidiary may be an appropriate structure, subject to the applicable FDI and regulatory framework.

Our Business Setup in India guide provides an overview of the principal options.

Frequently Asked Questions

What should a foreign company consider before starting a company in India?

The foreign investor should evaluate its proposed business activities, entity structure, FDI eligibility, ownership, funding, taxation, transfer pricing, location, employees, licences and ongoing compliance requirements before incorporation.

Can a foreign company own 100% of an Indian company?

Yes. Up to 100% foreign ownership is permitted under the Automatic Route in many sectors, subject to applicable FDI sectoral caps, conditions and restrictions.

Certain sectors may have lower foreign ownership limits, specific conditions or Government approval requirements.

Which company structure is generally preferred by foreign investors in India?

A Wholly Owned Subsidiary is frequently considered where the foreign investor wants a long-term commercial presence and full ownership.

However, the appropriate structure depends upon the proposed activities. Branch Offices, Liaison Offices, Project Offices and Joint Ventures may be more suitable in particular circumstances.

Is an Indian resident director required?

An Indian company must comply with the resident-director requirement prescribed under the Companies Act.

Foreign investors should therefore plan the Board structure before incorporation and ensure that applicable residency requirements are satisfied.

Does a foreign company need RBI approval to establish a subsidiary in India?

Not in every case.

Where foreign investment is permitted under the Automatic Route and applicable conditions are satisfied, prior RBI or Government approval is generally not required merely because the shareholder is foreign.

However, FEMA reporting and other post-investment requirements may still apply.

Government or sectoral approval may be required in specified cases.

How much capital is required to start a company in India?

There is no single amount applicable to every company.

The foreign investor should determine the capital requirement based upon the proposed business, employee costs, infrastructure, working capital and expected period before the Indian operations become self-sustaining.

FDI or sector-specific conditions should also be checked where applicable.

Can a foreign company start business immediately after incorporation?

Not necessarily.

Depending upon the circumstances and proposed activity, the company may need to complete post-incorporation matters such as bank account activation, capital subscription, commencement-related filings, GST registration, Import Export Code, FEMA reporting and sector-specific licences before undertaking certain activities.

Are transactions between an Indian subsidiary and its foreign parent subject to transfer pricing?

International transactions between associated enterprises may be subject to Indian transfer pricing regulations.

Such transactions generally need to satisfy the arm’s-length principle and may require prescribed documentation and reporting.

What are the main ongoing compliances of a foreign-owned Indian company?

Depending upon its activities, requirements may include Companies Act and ROC compliance, statutory audit, financial statements, income tax return, TDS, GST, FEMA reporting, transfer pricing and employment-related compliance.

Should a foreign investor choose a subsidiary or Branch Office?

A subsidiary is generally more suitable for long-term and scalable commercial operations, whereas a Branch Office is an extension of the foreign company and may undertake only permitted activities subject to applicable requirements.

The decision should be based upon activities, tax, liability, funding and long-term business objectives.

Related India Entry Services

India Market Entry Consulting Services

Strategic advisory for foreign companies evaluating the appropriate India-entry route, business structure, ownership, investment and regulatory framework.

Business Setup in India

Guidance on selecting and establishing the appropriate business presence for foreign companies entering India.

Wholly Owned Subsidiary in India

End-to-end assistance with subsidiary incorporation, FDI structuring, FEMA reporting and post-incorporation compliance.

Joint Venture Registration in India

Advisory and implementation support for foreign investors establishing businesses with Indian or overseas strategic partners.

Foreign Subsidiary Compliance in India

Guidance on Companies Act, ROC, tax, FEMA and other recurring requirements applicable after establishment of a foreign-owned company.

Prepared and Reviewed by EzyBiz India Consulting LLP

Reviewed by: Anil Agrawal, Chartered Accountant

Last Updated: August 2026

Disclaimer

The information contained on this page is intended for general informational purposes only and should not be construed as legal, tax, accounting, investment or regulatory advice.

The appropriate India-entry structure, foreign ownership, tax treatment, funding mechanism, regulatory requirements and business setup process depend upon the investor’s jurisdiction, proposed business activities, sector, ownership structure, transaction model and other relevant facts.

Foreign investment, FEMA, taxation, Companies Act and sector-specific regulations may change from time to time. Foreign investors should obtain appropriate professional advice based upon their specific circumstances before making an investment or establishing a business in India.

EzyBiz India Consulting LLP does not accept responsibility for any decision or action taken solely on the basis of the general information contained on this page.