FOREIGN DIRECT INVESTMENT

FDI policy is presented by the Government of India through the Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce & Industry, Government of India makes policy pronouncements on FDI through Press Notes/Press Releases which are notified by the Reserve Bank of India as amendments to the Foreign Exchange Management (Transfer or Issue of Security by Persons Resident Outside India) Regulations, 2000 (notification No. FEMA 20/2000-RB dated May 3, 2000). These notifications take effect from the date of issue of Press Notes/ Press Releases, unless specified otherwise therein. In case of any conflict, the relevant FEMA Notification will prevail. The procedural instructions are issued by the Reserve Bank of India vide A.P. (DIR Series) Circulars. The regulatory framework, over a period of time, thus, consists of Acts, Regulations, Press Notes, Press Releases, Clarifications, etc.

This is presented as Consolidated FDI Policy  in a transparent, predictable and easily comprehensible policy framework on Foreign Direct Investment. This framework is embodied in the Circular on Consolidated FDI Policy, which is updated every year, to capture and keep pace with the regulatory changes, effected in the interregnum.

 INVESTING IN INDIA
I) ENTRY OPTIONS FOR FOREIGN INVESTORS:
Subject to stated regulations non Residents/Foreign companies have the option to set-up their business operations in India either in the stated form of incorporated entities or unincorporated entities. These may be in fresh participation of participation in an existing entity.
i) Unincorporated entities:
A foreign company not opting to be incorporated in India is permitted to set up its business operations in India through any of the following offices:
* Liaison Office of a foreign company;
* Branch Office of a foreign company; or
* Project Office of a foreign company.

Such offices can undertake activities permitted to them under the Regulations framed under FEMA for the same. These offices are further required to be in compliance with provisions of the Companies Act as applicable to them. The approvals to set-up these offices are accorded by the RBI on a case-to-case basis, except project office for which no approval is required, as the RBI has granted a general permission for the same54.

(a) Liaison Office (or Representative Office):-
A "Liaison Office" means a place of business to act as a channel of communication between the principal place of business or head office by whatever name called and entities in India. It is not permitted to undertake any business activity in India and cannot earn any income in India, and therefore is required to maintain itself out of inward remittances received from the head office outside India. The activities of the liaison office are typically restricted to the following:
*Representing the parent company or group companies in India;
*Promoting exports from and imports to India; or group companies and
*Promoting technical and financial collaborations between parent companies in India; and
*Acting as a channel of communication between the parent company and Indian companies.
The role of such office is limited to collecting information about possible market opportunities and providing information about the company to prospective customers in India. All expenses of liaison offices have to be met from remittance from abroad. Liaison offices do not have any authority to enter into any contract in India. Foreign insurance companies can establish liaison offices in India, after obtaining approval from the Insurance Regulatory and Development Authority (hereinafter "IRDA").

(b) Branch Office: -
Foreign Companies engaged in manufacturing or trading activities outside India are allowed to set-up a "Branch Office" in India. A branch office is permitted to carry on the following activities, which are wider in scope as compared to the activities permitted to a liaison office:
*Export and Import of goods;
*Rendering professional or consultancy services;
*Carrying out research assignments, in areas in which the parent company is engaged;
*Promoting technical or financial collaborations between Indian companies and their 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;
The profits of a branch office are permitted to be remitted outside India subject to the payment of the applicable Indian taxes and RBI guidelines. A branch office is not permitted to engage in any manufacturing, processing activities in India, directly or indirectly. Retail trading activities of any nature are not allowed for a branch office in India.

(c) Project Office: -
A "Project Office" means a place of business established to represent the interests of a foreign company executing a project in India. Such offices are prohibited from undertaking or carrying on any activity other than the activity relating and incidental to the execution of the project for which such office is established.
In order to set up a project office, a foreign company has to secure from an Indian company, a contract to execute a project in India, and the fulfillment of one of the following conditions:
*Such project is funded directly by inward remittance from abroad; or
*Such project is funded by bilateral or multilateral international financing agency; or
*Such project has been cleared by an appropriate authority; or
*The company or entity in India awarding the contract has been granted a term loan by a public financial institution or a bank in India for the project.
The above as its nature would be only vide fresh 'participation'

(d) Limited Liability Partnership
A Limited Liability Partnership ( LLP") is a form of business entity which permits individual partners to be shielded from the liabilities created by another partner's business decision or misconªduct. In India, LLPs are governed by The Limited Liability Partnership Act, 2008. The LLP is a body corporate and exists as a legal person separate from its partners. Foreign investment in LLPs is permitted under the government approval route only in LLPs operating in sectors where 100 per cent FDI is allowed through the automatic route and there are no performance linked conditions.

(e) Partnership
A partnership is a relationship created between persons who have agreed to share the profits and losses of a business at a agreed proportion carried on by all of them, or any of them acting for all of them. A partnership is not a legal entity independent of its partners. The partners own the business assets together and are personally liable for business debts and taxes. In the absence of a partnership agreement, each partner has an equal right to participate in the management and control of the business and the profits/losses are shared equally amongst the partners. Any partner can bind the firm and the firm is liable for all the liabilities incurred by any partner on behalf of the firm. Foreign investment is permitted in Indian partnership firms subject to prior approval of RBI.

(e) Trust
A trust arises when one person (the "trustee") holds legal title to property but is under an equitable duty to deal with the property for the benefit of some other person or class of persons called beneficiaries. Like a partnership, a business trust is not regarded as a legal entity. The trust, as such, does not incur rights or liabilities. The beneficiaries do not generally obtain rights against or incur liabilities to third parties because of the transactions or actions undertaken by the trustee in exercising its powers and carrying out its duties as a trustee. If the trustee of a business trust is a corporation, the participants may effectively limit their liability to the assets of the corporate trustee and the assets held by the corporation on trust for the beneficiaries. A foreign resident may only be the beneficiary of a trust, which is set up as a venture capital fund and only after receiving the prior consent of the FIPB.

ii) Incorporated entities:
A foreign company opting for the incorporation route for setting up its operations in India is required to incorporate a company in India through either (1) a Joint Venture or (2) a Wholly Owned Subsidiary Companies in India are regulated inter alia, vide the provisions of the Companies Act, 1956 ("Companies Act"). A "Company' stands for a company formed and registered under the Companies Act. A Company may be incorporated as one of the following two types:
*Private Company is a company with a minimum paid up capital of INR 100,000 or higher; by its articles restricts the right to transfer its shares, limits the number of its members to fifty, prohibits invitation to the public to subscribe for any shares in or debentures of the company and prohibits any invitation or acceptance of deposits from persons other than its members, directors or their relatives.
*Public Company (listed or unlisted) which is (i) not a private company; (ii) a company with a minimum paid up capital of INR 500,000 or higher; and (iii) a private company, which is a subsidiary of a public Company
These are subject to norms/regulation as laid down for Foreign Direct Investments (FDI).