India’s business environment is currently experiencing a fun ride, boasting an average annual GDP growth of 7%. This figure has either remained constant or experienced exponential growth in recent years. The Indian business sector is blooming with an ample number of foreign investments and trade, supported by multiple government initiatives and the emergence of skilled youth nationwide.
When initiating business operations in India, company registration stands as a crucial step, offering legal protection, tax advantages, access to funding, and other pertinent benefits. Moreover, establishing credibility within the country is very important for businesses aiming to thrive and expand their footprint and that’s where employment models like Employer of Record (EOR) or outsourcing come with an alternative and help businesses start operations using remote resources in India.
However, meeting these demands can be achieved without going through the tedious formal conundrum of the registration process. This blog aims to fairly explore alternative options for business owners and enterprises to engage in economic activities, how to setup a business in India, and avoid concerns related to company registration at the same time.
Understanding the Type of Companies in India
The government of India employs diverse registered entity models, each offering unique advantages and demands. Let’s understand each model and explore their respective operations.
Wholly Owned Subsidiary (WOS)
A foreign company can set up a wholly-owned subsidiary in India. This subsidiary is treated as an Indian company and is subject to Indian laws and regulations. The type of company for wholly owned subsidiaries could be a private limited company or a public limited company.
What is a Private Limited Company?
This is a type of company that operates as a privately held entity, owned by stakeholders who enjoy limited liability proportional to the shares they hold in the company. According to Section 2 (68) of the Companies Act, 2013, it falls under a category characterized by a minimum paid-up share capital corresponding to the stock held by shareholders, with share transfer strictly prohibited except for one-person companies. Notably, these companies offer significant operational flexibility and lucrative long-term investment opportunities, making them one of most the desirable corporate entities among others.
What is a Public Limited Company?
This type of company boasts a minimum of seven shareholding partners and offers all corporate privileges while limiting liability to its shareholders. The distinct advantage of a public limited company lies in its ability to raise capital from the general public by listing on the stock market and adhering to government-mandated regulations. In essence, it combines the flexibility of a private limited company with the potential for multiple funding sources, significantly reducing liability for its shareholders.
Then there are other types of companies or registered offices that one can use to enter India,
What is a Joint Venture?
Foreign entities can also form joint ventures with Indian partners. Joint ventures allow for risk-sharing and leveraging local expertise. The terms of the joint venture are typically outlined in a joint venture agreement between the foreign entity and the Indian partner(s). Foreign companies can establish branch offices in India to undertake specified activities, subject to approval from the RBI.
What is a Branch Office?
Foreign companies can establish branch offices in India to undertake specified activities, subject to approval from the RBI. Branch offices are extensions of the foreign company and do not have a separate legal identity from the parent company.
What is a Project Office?
Foreign companies can set up project offices in India to execute specific projects, subject to approval from the RBI. Project offices are temporary and are permitted to undertake only specific projects.
However, it’s important to note that there are several factors you need to comply with while registering your business in India. Some of them include taxation like income tax, goods and services tax (GST), compliance with local laws and regulations like Companies Act, GST laws, labor laws, environmental laws, smooth access to finance and banking services like finance, loans, credit facilities, and banking services, and contractual limitations like contracts, partnerships, or agreements with other businesses or government agencies, etc.
All these types of entities would mean legalities, compliances, and administration. To minimize these non-core-overheads of management, people want to know ways to utilize the Indian potential without getting into these overheads.
An Alternative to Starting Your Business Without Registration
If you prefer to avoid the complexities of registering your business in India and learn how to set up a business in India, you can opt to expand your team in the country and operate remotely. However, expanding a team in India without establishing a registered company can pose significant challenges in terms of legality, logistics, and administration. This is where outsourcing and Employer of Record (EOR) models come into play, offering viable solutions for companies like yours aiming to expand their presence in India without the hassle of setting up a legal entity. Let’s delve into how these models can facilitate team
expansion while minimizing risks and ensuring compliance.
Outsourcing Model
The outsourcing model entails contracting with a third-party service provider in India to handle specific tasks or projects on behalf of your company. This approach offers several advantages for companies looking to expand their team without establishing a legal entity:
- Scalability: Outsourcing provides flexibility in scaling operations up or down as needed, without the complexities of traditional hiring processes or long-term commitments.
- Access to Specialized Skills: India boasts a vast pool of highly skilled professionals across various domains, including IT, engineering, finance, and digital marketing. Outsourcing enables companies to tap into this talent pool and leverage specialized expertise to achieve business objectives.
- Risk Mitigation: Outsourcing providers in India typically have established processes, infrastructure, and compliance measures in place to ensure project delivery while mitigating risks associated with remote collaboration, intellectual property protection, and data security.
Employer of Record (EOR) Model
The Employer of Record (EOR) model involves partnering with a local entity in India that serves as the legal employer of your company’s workforce in the country. Under this model, the EOR takes on responsibilities such as payroll management, tax compliance, benefits administration, and other HR-related functions, allowing your company to focus on core operations. Here’s how the EOR model can benefit companies expanding their team in India.
- Compliance and Legal Support: Engaging an EOR ensures compliance with local labor laws, regulations, and tax requirements in India, without the need to establish a legal entity. The EOR handles employment law, payroll processing, and statutory compliance, reducing the risk of legal issues and penalties.
- Quick Market Entry: The EOR model enables swift entry into the Indian market without the time-consuming process of setting up a legal entity, making it ideal for seizing market opportunities or responding to business dynamics effectively.
- Flexibility and Control: While the EOR assumes legal responsibility for the workforce in India, companies retain operational control over their employees, including recruitment, project management, performance evaluation, and strategic decision-making.
- Access to Talent: Partnering with an EOR expands access to talent in India, allowing companies to recruit and retain top-tier professionals to support business objectives and drive growth in the region.
- Focus on Core Competencies: Collaboration with an EOR allows companies to focus on core business activities that drive growth and innovation, while the EOR manages non-core functions like employee support and back-office operations.
- Cost Efficiency: The EOR model enables access to a vast talent pool in India at competitive rates, leveraging the lower cost of living and workforce in the country to reduce operational expenses while maintaining quality standards.
- Risk Mitigation: The EOR assumes responsibility for managing employment-related risks, shielding the company from legal disputes, labor issues, and regulatory compliance challenges, and ensuring a smooth and compliant operation in India.
Conclusion
To sum up, one can start business operations in India without entity formation through outsourcing or Employer of Record (EOR) models. By leveraging these models, companies can access talent, mitigate risks, ensure compliance, and drive business growth in one of the world’s fastest-growing markets.
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Rumela Chakraborty
Rumela Chakraborty is a passionate content writer specialist of Remunance’s marketing team with a knack for crafting engaging and informative articles. With extensive experience in curating versatile content, she has honed her skills to produce high-quality, SEO-optimized content. Be it blog posts, PR articles, or social media content, she takes pleasure in infusing storytelling into her work and has a keen eye for detail. She has emerged as a subject matter expert in the PEO/EOR industry, transforming a wide array of concepts related to remote work, freelancing, outsourcing, payroll, and more into compelling narratives that resonate with the intended audience.
