Several players have ventured into the Indian market, only to withdraw due to complex operational challenges. However, given the vast opportunities India presents - driven by rapid urbanization, a growing affluent middle class, and consistent economic growth - many of these same players have recently decided to return. Notable examples include PSA Peugeot-Citroën, Louis Dreyfus Armateurs, and, more recently, Carrefour and Groupe Bel. Their renewed presence underscores the transformation of India’s economic environment and its strategic potential.

Today, India hosts over 700 French companies, including 39 CAC 40 heavyweights, reinforcing its appeal as one of the world's most promising markets.

This article aims to analyze the various legal structures available to foreign investors in India, focusing on applicable regulatory frameworks, tax implications, and operational flexibility. The goal is to help investors identify the most suitable structure for their strategic and commercial needs.

While India’s economic dynamism is attractive, its administrative complexity may deter some foreign investors. This raises a fundamental question: what is the best legal structure for establishing operations in India?

There are three main categories of entities:

(1) Transitional entities, designed for market exploration with limited commitment.
(2) Legal entities, enabling a long-term presence with a formal structure.
(3) Joint ventures, offering a collaborative approach to leverage local expertise, distribution networks, and financial resources.

The choice of structure depends on the level of commitment an investor envisions for India. For a phased entry strategy, transitional entities such as Branch Offices, Liaison Offices, or Project Offices can be strategic options.

(1) Transitional entities

These entities enable the parent company to carry out activities that are limited to market research or testing the Indian market to assess supply and demand by limiting its activity to marketing and communication. Finally, it may also be a question of a specific project/worksite won in a call for tenders, for which a Project Office will be created/declared, with a duration of existence limited to the period of the project in question.

Note that these entities require the approval of the Reserve Bank of India and do not confer separate legal personality in India. They are therefore considered non-legal entities. From a tax perspective, they are taxed at higher rates than an Indian company. In other words, these entities engage the liability of the foreign entity, or even the parent company.

a. Liaison Office

As the name suggests, a Liaison Office serves as a bridge between the parent company and its Indian operations. It only represents its parent company and is not permitted to negotiate or market the services and activities of the latter, either directly or indirectly. Its role is limited to:

• Promoting exports, imports, and technical collaborations; and
• Facilitating communication between the parent company and its Indian operations.

A Liaison Office operates solely on funding received from its parent company. Registering and declaring one requires the parent company to have a minimum profit of USD 50,000 over the last three fiscal years. Companies such as General Electric and Dassault have used this model to establish an initial foothold in India.

A Liaison Office is granted an initial three-year license, renewable for an additional three years, subject to justification before the Registrar of Companies.

b. Project Office

A Project Office is created to execute a specific project for which a foreign company has secured a contract through a public or private tender. Unlike a Liaison Office, a Project Office can use revenue earned in India to fund its operations.

Its lifespan is limited to the duration of the project.

c. Branch Office

A Branch Office can conduct commercial transactions in the name and on behalf of the parent company. Permitted activities include:

• Importing/exporting goods;
• Providing services;
• Acting as an agent for the parent company;
• Representing an airline or shipping company.

To establish a Branch Office, the parent company must have earned at least USD 100,000 in profit over the last five fiscal years and obtain prior approval from the Reserve Bank of India.

(2) Legal entities

For many years, foreign investors primarily entered the Indian market by establishing a Private Limited Company (PLC), the most common legal structure. However, the regulatory relaxation for Limited Liability Partnerships (LLP) has made them an attractive alternative due to their lower administrative burden compared to PLCs.

Public Limited Companies, while offering access to public capital markets (similar to French Société Anonyme), are subject to stringent governance rules and will not be covered in this discussion.

All corporate structures under the Companies Act, 2013 require at least one Indian tax resident director on the Board of Directors, defined as an individual present in India for at least 182 days in the calendar year preceding incorporation.

This requirement can be challenging for foreign investors who must identify a trusted Indian tax resident director before incorporation.

As a result, some investors prefer to establish joint ventures with existing Indian entities.

The following table summarizes the key characteristics of the two most used legal structures for investing in India:

An LLP is similar to a French SAS, whose by-laws are freely negotiated and discussed by the entity's shareholders, without regulatory constraints. There are no mandatory legal provisions, as is the case for PLCs. An LLP is indeed strongly characterized by the consensualism of its shareholders and the flexibility of its by-laws. Note that this flexibility comes with several risks: depending on the sectors and the chosen modes of governance, an LLP does not require the same number of annual declarations as a PLC. It has a reduced administrative burden, but this flexibility often leads to negligence regarding mandatory declarations. In other words, the regulatory compliance of LLPs has a low cost but a high risk due to negligence.

A PLC is ideal for large-scale activities thanks to its attractiveness to investors, while an LLP offers more flexibility and a reduced administrative burden for more modest or specialized activities. It is important to note that the applicable tax regime may vary depending on the available deductions or specific regimes, such as the Minimum Alternate Tax (MAT).

For example, IKEA entered India in 2018 as a PLC and successfully expanded across multiple cities through a combination of brick-and-mortar stores and online stores.

It is also possible to convert a PLC into an LLP or vice versa, depending on business growth, in order to optimize the impact of the taxes applicable to your company.

The key steps for creating your entity in the form of a PLC or an LLP are as follows:

1. Check the availability of the company name of your future Indian company;
2. Fill in an identity form for at least two directors in order to obtain their Digital Signature Certificate (DSC) in the form of a USB key which will be used to sign your documents and upload them online to the platform of the Indian registry/Registrar of Companies;
3. Produce a copy of your passport, certified by a notary and apostilled by the Court of Appeal of your jurisdiction;
4. Produce proof of address, translated into English, certified by a notary and apostilled by the Court of Appeal of your jurisdiction;
5. File your constitutive document (Articles of Association, Memorandum of Association) online on the portal of the Ministry of Corporate Affairs;
6. Pay the applicable tax stamps for the registration of your entity;
7. Submit your documents to the Indian registry, which may suggest some changes to be made before approval;
8. If everything is in order, the registry will issue you a Certificate of Incorporation, equivalent to the French K-Bis;
9. Submit a declaration of receipt of the amount of the subscribed share capital and verification of the registered office within 180 days of the creation of the company and before the start of its activities.

(3) Joint Ventures

Joint ventures (JVs) are particularly useful in sectors where foreign direct investment is limited, particularly due to the capped capitalization thresholds requiring an Indian participation of 74/26, 51/49, or in sectors where the Made in India and local sourcing and manufacturing requirements can appear restrictive. This is precisely what is holding back Tesla's expansion in India.

However, other more seasoned players such as Carrefour have chosen to enter into a franchise partnership and a joint venture is under consideration with the Indian Apparel Group, since multi-brand retail is limited to a 51% share capital for foreign investments, as is the case for Adani and Total Energies, whose participation is limited to 20% of the capital of Adani Green Energy, and also Amundi and the State Bank of India (37% for Amundi in the State Bank of India Mutual Fund investment fund).

Without a partnership with a recognized and established local player, it would indeed be difficult to build a reputation alone in a country so vast, a continent in its own right. A joint venture thus appears to be a strategy that is often successful in establishing a long-term foothold in the Indian market.

A well-structured JV should ensure clear leadership among partners in their respective areas of contribution. After gaining market insights and building trust with Indian businesses, foreign investors can leverage partnerships to combine industry expertise and operational know-how.

It is essential to formalize the partnership in a shareholders' agreement, clearly specifying the financial participation of each of the two parties, the agreed governance rules, the method of transferring shares between the parties and to third parties, the method of dispute resolution and the grounds for termination of the partnership. These aspects are crucial to ensure the proper functioning of the joint venture.

Conclusion

India is poised to become the world’s third-largest economy by 2027, attracting increasing numbers of foreign investors. Regulatory reforms and expanded FDI opportunities make entry into the Indian market more accessible than ever. However, certain sectors, such as atomic energy, rail transport, real estate, and the construction of agricultural buildings remain restricted.

Selecting the right legal structure and adopting a strategic, well-planned approach can be crucial for success in this dynamic and complex market.