The End of the Maryland India Center: how to set up an Indian subsidiary

Happy Day!

Today I received permission to repatriate funds held by my Indian office. A little over a year after terminating the Maryland India Center’s lease (representing the closing down of the State of Maryland Trade Office in Bangalore), I’m near the final stages of winding down the entity. The Maryland India Center was the entity I formed to contract with the State of Maryland’s Department of Business and Economic Development.

The Liaison Office was rather time consuming to set-up, it took over 8 months and 5 visits in 3 different cities to receive Reserve Bank of India approval to open the office and a corporate bank account. There is no question in my mind that the Liaison Office was worth the wait because the closing down of it is easier than most other types of entities you can set up in India.

I’m frequently asked about how to start-up an entity in India. I always recommend starting with the end in mind. Plan for the ideal exit strategy as well as a range of foreseeable exit strategies.

Below highlights some of the more common types of subsidiaries a foreign entity can establish in India. All are regulated by the Companies Act, 1956.

PUBLIC LIMITED CORPORATIONS
o Right to transfer shares is restricted
o Maximum number of shareholders limited to 50
o No offer of shares or debentures can be made to the public
o Limited liability can be based on shares or guarantee.
o By shares, the personal liability is limited to the amount unpaid on their shares
o By guarantee, the personal liability is limited by a pre-decided nominated amount.
o Taxable business entity

LIAISON OFFICE
o Subject to approval from the Reserve Bank of India
o Objectives are usually to promote business in India by spreading awareness of company and
exploring opportunities for setting up a more permanent office
o No commission or fee of any other renumeration can be charged by the Liaison Office by the
foreign entity
o Liaison Office cannot undertake any trading, commercial or industrial nature
o All expenses of the Liaison Office should be met by remittances from abroad
o Liaison Office must submit an audit certificate annually to the Reserve Bank of India

BRANCH OFFICE
o Specific approval of Reserve Bank of India is required
o Branch Offices, subject to Reserve Bank of India approval, may engage in the following types
of activities:
Export/import goods
Offer professional or consultancy services
Carry out research
Represent the parent company, including as buyer/seller, in India
Render technical support for products supplied by parent company
Undertake activities of foreign airlines/shipping companies
Manufacture goods if located in a Special Economic Zone
o Taxable by Indian government
o Post-tax profits and surplus funds are repatriable
o Can acquire immovable property for RBI approved activities

PROJECT OFFICE
o A foreign entity can establish a project office in India without prior Reserve Bank of India
approval if it has secured a contract from an Indian company to execute a project in India
o A prescribed report must be filed with the Reserve Bank of India
o Tax treatment similar to a Branch Office

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