ENTRY STRATEGY INTO INDIAN MARKET - AS AN INDIAN COMPANY

 

ENTRY STRATEGY INTO INDIAN MARKET

AS AN INDIAN COMPANY

A foreign company can commence operations in India by incorporating a company under the Companies Act, 2013 through:

      Joint Ventures (JV)

or

        Wholly Owned Subsidiaries (WOS)

A) Joint Ventures (JV):

Joint Venture (JV) refers to the formation of a new company by two or more partners who join hands for a common objective.

Foreign Companies can set up their operations in India by incorporating a Joint Venture (JV) Company with an Indian partner and/or with the general public and operating either as a listed company or as an unlisted company.

Benefits of JV for a foreign investor:

•  Access to new markets and distribution networks.
• Increased capacity.
• Sharing of risks and costs (i.e. liability) with a partner.
• Access to new knowledge and expertise, including specialized staff.
• Access to greater resources, like technology and finance.

 

Drawbacks of JV for a foreign investor:

• The objectives of the venture are unclear.
• The communication between partners is not great.
• The partners expect different things from the joint venture.
• The level of expertise and investment isn't equally matched.
• The work and resources aren't distributed equally.
• The different cultures and management styles pose barriers to co-operation.
• The leadership and support is not there in the early stages.
• The venture's contractual limitations pose a risk to a partner's core business operations.

 

B) Wholly Owned Subsidiaries:

A wholly owned subsidiary is a company whose entire capital is owned by a parent company or holding company. Wholly owned subsidiaries allow the parent company to diversify, manage, and possibly reduce its risk. Foreign companies can also set up wholly owned subsidiary in sectors where 100% foreign direct investment is permitted under the FDI policy.

For registration and incorporation of the company, an application has to be filed with Registrar of Companies (ROC) as well as RBI. Once a company has been duly registered and incorporated as an Indian company, it is subject to Indian laws and regulations as applicable to other domestic Indian companies.

Foreign equity in such Indian companies can be up to 100% depending on the requirements of the investor, subject to equity caps in respect of the area of activities under the FDI policy.

Benefits:

·       Maintenance of effective control over its subsidiaries.

·       Access to a new market.

·       ransaction costs including the cost of negotiating and transferring information and capability to another firm, cost of personnel training, cost of losing the opportunity to having direct sales or getting the full amount of profit, and the threat of creating a competitor in markets beyond the purview of the agreement might be avoided.

·       It minimizes the dissemination risk.

Drawbacks:

·       Involves highest level of risk and commitment by the foreign investing companies.

·       A few nations are hesitant to setup entirely owned subsidiaries by outsiders in their nation.

·       There may be a conflict of interest between the parent company and its subsidiaries.

·       More taxes may result with use of separate business entities.

Planning to set up a business requires detailed analysis of few of the below factors:

 

1. Feasibility of the product/service in question
2. Demand of the product/service in question
3. Nature of establishment
4. Ease of setting up
5. Cost & time involved in set up
6. Number of government approvals required to set up
7. Tax Liability
8. Post set up annual filings with the government

 

ENTRY STRATEGY INTO INDIAN MARKET AS A FOREIGN COMPANY

 

ENTRY STRATEGY INTO INDIAN MARKET

AS A FOREIGN COMPANY

 Foreign Companies can set up their operations in India through:

(A) Liaison Office/Representative Office (LO) or,

(B) Project Office (PO) or,

(C) Branch Office (BO)

A) LIAISON OFFICE (LO):

A Liaison Office (also known as Representative Office) can undertake only liaison activities, i.e. it can act as a channel of communication between Head Office abroad and parties in India.

Expenses of such offices are to be met entirely through inward remittances of foreign exchange from the Head Office outside India.

Role & Responsibilities

·        To collect information about possible market opportunities

·        To provide information about the company and its products to the prospective Indian customers.

Permissible activities for BO:

·        Representing in India the parent company / group companies.

·        Promoting export / import from / to India.

·        Promoting technical/financial collaborations between parent/group companies and companies in India.

·        Acting as a communication channel between the parent company and Indian companies.

Non Permissible Activities for BO:

·        To undertake any business activity in India and cannot earn any income in India.

 Prior Approvals:

Foreign Insurance companies can establish Liaison Offices in India only after obtaining approval from the Insurance Regulatory and Development Authority (IRDA).

Foreign banks can establish Liaison Offices in India only after obtaining approval from the Department of Banking Regulation (DBR), RBI.

Necessary Documentation and Form Filings:

An application for establishing office in India shall be filed in Form FNC (Annex-1) along with the documents mentioned therein to Foreign Investment Division, Reserve Bank of India, Central Office, Fort, Mumbai.

B) PROJECT OFFICE (PO):

Project Office means a place of business representing the interests of the foreign company executing a project in India.

RBI has  granted general permission to foreign companies to establish Project Offices in India, provided they have secured a contract from an Indian company to execute a project in India, and,

·        the project is funded directly by inward remittance from abroad; or

·        the project is funded by a bilateral or multilateral International Financing Agency; or

·        the project has been cleared by an appropriate authority; or

·        a company or entity in India awarding the contract has been granted Term Loan by a Public Financial Institution or a bank in India for the project.

Non-Permissible Activities for PO:

·        Prohibition from undertaking or carrying on any activity other than the activity relating to the execution of the project for which such office is established.

Prior Approval:

Setting up of Project Offices by foreign Non-Government Organizations/Non-Profit Organizations/Foreign Government Bodies/Departments, by whatever name called, are under the Government Route. Accordingly, such entities are required to apply to the Reserve Bank for prior permission to establish an office in India, whether Project Office or otherwise.

Necessary Documentation & Form Filings:

The application for establishing Project Office in India may be submitted by the non-resident entity in Form FNC (Annex B) to a designated AD Category – I bank along with the prescribed documents mentioned in the Form.

 C) BRANCH OFFICE (BO):

Companies incorporated outside India and engaged in manufacturing or trading activities are allowed to set up Branch Offices in India with specific approval of the Reserve Bank.

Permissible Activities for BO:

·        Export / Import of goods.

·        Rendering professional or consultancy services

·         Carrying out research work, in areas in which the parent company is engaged.

·        Promoting technical or financial collaborations between Indian companies and parent or overseas group company.

·        Representing the parent company in India and acting as buying / selling agent in India.

·        Rendering services in information technology and development of software in India.

·        Rendering technical support to the products supplied by parent/group companies.

·        Foreign airline/shipping company.

Non Permissible Activities for BO:

·        To carry out retail trading activities of any nature.

·        To carry out manufacturing or processing activities in India, directly or indirectly.

 

Necessary Documentation & Form Filings:

Application for opening a new branch office in India shall be filed in Form FNC (Annex-1) and will be considered directly by the RBI if it falls under one of the sectors where 100% FDI investment is allowed.

Prior Approval

For sectors other than the allowed sectors an application must be approved by the Ministry of Finance as well as RBI.

Disclaimer:

The material and contents of this Article have been compiled with due care and caution before their publication and are provided only for information of clients, associates friends, community and family without any express or implied warranty of any kind. The Article does not constitute any professional guidance, advice or legal opinion. In any event no claim is made as to the accuracy or authenticity of the contents of this Article.

The readers are advised to make appropriate enquiries and seek appropriate professional advice and not take any decision based on the contents of this Article only. In no event shall this Article or Janmejay Singh Rajput and Associates or any employee of JSRA and its officers and associates, be liable for anydamages whatsoever arising out of the use of or inability to use the material or contents of this Article or the accuracy or otherwise of such material or contents.

This Article is not an advertisement or any form of inducement or invitation for solicitation of any kind of work whatsoever.

If at any time you wish to unsubscribe receiving this Article please e-mail us at racs.jsa@gmail.com or contact on +91- 9818715747.

Ground Based Solutions for curbing Economic Slowdown

Ground Based Solutions for curbing Economic Slowdown

The novel coronavirus pandemic has stalled economic activity, threatening to push the world into a recession, and most sectors are feeling its impact.

But there are sectors that have remained unscathed from the impact of the virus outbreak as yet, some of which are as follows:

Ø  Telecom Sector:

As, citizens are being urged to stay at home and practice social distancing has been an aid to the telecom sector as there has been a consumption of more data.

Ø  Healthcare Sector:

The Government of India has committed to spend nearly Rs 10,000 crore to encourage companies to manufacture pharmaceutical ingredients domestically after the coronavirus outbreak disrupted supply chains.

Ø  Insurance Sector:

The Insurance Regulatory Authority (IRDAI) has asked insurers to cover Covid-19 cases in their existing policies and ensured to the attend the coronavirus claims expeditiously.

So, we as consultants should focus on these above mentioned sectors in order to take this crisis as an opportunity and turning it favorable for the business is all that matters to let it sail smoothly in these difficult times. Various schemes have been introduced by the Ministry of Corporate Affairs to lure the Companies which are at default to make their default good by completing their pending filings.

Even, our Hon’ble Prime Minister Narendra Modi had mentioned for setting up a 'Covid-19 Economic Response Task Force' to decide on relief package for sectors hit by the coronavirus outbreak.

Effective communications during this crisis are crucial for retaining market stability which will not only help us sail this phase smoothly but also create an impact on the society at large.

Though, it is imperative to reconsider the business model and reassess where your business stands as per your assumptions concerning the revenue and cost but the ideal way is to maintain transparency and healthy relationships with our stakeholders and contracted parties, as we are together in all this.

Together, we could build something better, fairer, more sustainable in its place.

What are the methods and how to reduce share capital of the company

The company can reduce capital by using one of the following methods:

1. Reduce the liability of its shares in respect of the share capital not paid-up.
2. Cancel any paid up share capital which is lost or is unrepresented by available assets.
3. Pay off any paid up share capital which is in excess.

*Refer Section 66 of Companies Act 2013 and NCLT (Proceedure for reduction of share Capital of the company) Rules, 2016*

LATEST UPDATES ON LLP- The latest Updates on LLP in year 2020

The latest Updates on LLP in the year 2020 are as follows:

v  In exercise of the powers conferred by sub-section (1) of section 67 of the Limited Liability Partnership Act, 2008 (6 of 2009), the Central Government hereby directs that the provisions of section 460 of the Companies Act, 2013 (18 of 2013) shall apply to a limited liability partnership from 30th January, 2020.

v  Government brings schemes for 'fresh start' for companies, LLPs amid Covid- 19 outbreak. The entities would get immunity from penal proceedings with respect to delay in the submission of requisite filings. The government has extended the deadline for submitting filings without late fee till September 30, 2020.

    "Both the schemes also contain provision for giving immunity from penal proceedings,                          including against imposition of penalties for late submissions and also provide additional time   

     for filing appeals before the concerned Regional Directors against the imposition of penalties, if  

     already imposed," the release said

     However, the immunity would be only against delayed filings in MCA 21 portal and not

     against any substantive violation of the law.

     Requisite filings to the ministry are made through the MCA 21 portal.

NCLT & IBC During Lockdown under COVID-19 Pandemic

NCLT & IBC During Lockdown under COVID-19 Pandemic 

The National Company Law Tribunal (NCLT) vide its notice dated 22.03.2020 had suspended judicial functioning and also mentioned that it would only hear matters which are unavoidable and urgent.

In view of the extension of the nationwide lockdown to contain COVID-19, the National Company Law Tribunal (NCLT) has decided to maintain the status quo as it has decided to continue hearing only unavoidable urgent matters.

“In view of the seriousness of pandemic novel coronavirus (COVID-19) the urgent matters at NCLT Benches shall be heard through video conference w.e.f 21.4.2020 till the lockdown ends,” the notice released on Monday said.

The company tribunal had announced that it would not accept any fresh filings from March 27 onward due to crowding at the filing centres. According to the notice, all benches of the NCLT will function with a single-judge bench until the lockdown ends.

For the filing and listing of these matters, an application has to be filed through email to the registry NCLT Chennai after the service of notice to the opposite party. Thereafter, appropriate orders would be passed by the Acting President (presiding at Chennai).The user shall file joint Memo in case of written submission under Companies Act, 2013 & IBC, 2016.

 It has also been made very clear by this notice that the parties/counsel would not be given a chance to make any oral submissions.

The NCLT has asked that all advocates, litigants and others who would be part of the hearings to dress formally while addressing the video conference.

Only certain benches would accept filings of matters with limitation issues while other benches would consider filings through email, the NCLT has said in the earlier notification.

The National Company Law Appellate Tribunal (NCLAT) followed suit by shutting down its premises and its filing counters on March 21.

Both the NCLT and the NCLAT had adjourned hearings for after the lockdown in progressive notices, however, with the lockdown being extended, the NCLT has decided to take up some of its pending cases.

The Insolvency and Bankruptcy Code (IBC) on the other hand on 17th April confirmed that The 21-day lockdown imposed to contain the spread of coronavirus will be excluded from timelines mandated by the Insolvency and Bankruptcy Code (IBC) in the resolution process. The Insolvency and Bankruptcy Board of India (IBBI) has inserted a Regulation 40C in the insolvency law, called the Insolvency and Bankruptcy Board of India Regulations 2020.

"Notwithstanding the time-lines contained in these regulations, but subject to the provisions in the Code, the period of lockdown imposed by the Central Government in the wake of COVID-19 outbreak shall not be counted for the purposes of the time-line for any activity that could not be completed due to such lockdown, in relation to a corporate insolvency resolution process," the new Regulation 40C states.

The new regulation will come into effect from March 29, 2020, IBBI said in a statement on Sunday. This means that troubled companies will get a breather of 17 days.

Originally, the insolvency law granted 180 days to finish the resolution process, which was extensible by 90 more days - 270 days in total. Presently, the IBC gives companies 330 days to finalise the resolution process, including litigation and other judicial processes. Failing which, the company will have to go to liquidation.

IBC has opened Window for Virtual Hearing for hearing their company grievances.

The user shall file joint Memo in case of written submission under Companies Act, 2013 & IBC, 2016. Applicant shall submit brief facts within five to ten lines and serve the same on the opposite party along with the supporting material and relief desired. Opposite party shall defend in the same manner and an Application, draft points or relief expected.

Scanned copies of evidences shall also be submitted along with the application. The usual practice of filing rejoinder is suspended for time being. If situation demands an interim relief shall also be provided before filing Memo.

Disclaimer:

Nothing in this document is to be construed as a legal opinion or views of Janmejay Singh Rajput & Associates (JSRA), Company Secretaries, whatsoever and the content is to be used strictly for educational/information purposes only.

Janmejay Singh Rajput, 

CS, LLB, Trade Mark Attorney, Certified CSR Professional,

Member of NCLT & AT Bar Association

Janmejay Singh Rajput & Associates (JSRA)

Company Secretaries 

38, Second Floor, Sant Nagar, East of Kailash,

New Delhi-110065- India

Contact No.- 011-41835558/ 9818715747

Mail-id:- racs.jsa@gmail.com, info@csjanmejay.com,

www.csjanmejay.com