What is the process for an NRI to set up a business or company in India?

A comprehensive guide on the NRI business setup process in India. Learn about legal requirements, choosing a business structure, and the step-by-step registration process for starting your company as an NRI.

Introduction

India’s burgeoning economy, with its dynamic market and pro-business reforms, presents an irresistible pull for entrepreneurs worldwide. For Non-Resident Indians (NRIs), this pull is often coupled with a deep-seated desire to contribute to their home country’s growth story. The opportunities for NRI investment in Indian companies are vast, spanning technology, manufacturing, services, and more. However, the ambition to launch a venture in India from abroad is frequently met with the challenge of navigating a complex web of legal procedures and financial regulations. This perceived complexity can often be a deterrent. This is precisely why we’ve created this definitive guide. This article will demystify the entire NRI business setup process, providing a clear, step-by-step roadmap. We will explore everything from understanding the core legal frameworks to choosing the right business entity and successfully completing the registration, answering the crucial question of how NRI can start business in India.

First Steps: Understanding the Legal Framework for NRIs

Before diving into the operational aspects of starting a business, it is crucial to understand the foundational legal and regulatory landscape that governs NRI investments in India. This framework, primarily shaped by the Foreign Exchange Management Act (FEMA) and the government’s Foreign Direct Investment (FDI) policy, sets the rules of engagement for any NRI looking to invest capital in an Indian enterprise. Familiarizing yourself with these regulations is the first and most important step towards ensuring a compliant and smooth business launch. These rules define who is considered an NRI, how foreign currency can be brought into the country, and which sectors are open for investment. A clear grasp of these legal requirements for NRI business setup will prevent future complications and ensure your venture is built on a solid legal footing from day one.

Who Qualifies as a Non-Resident Indian (NRI)?

To proceed with setting up a business as an NRI, you must first confirm that you legally qualify under this definition. In India, the term ‘Non-Resident Indian’ is defined by two key pieces of legislation: the Foreign Exchange Management Act, 1999 (FEMA) and the Income Tax Act, 1961. While the definitions have nuances, the most practical criterion for an individual is the duration of their stay in India. According to FEMA, an Indian citizen who has resided outside India for employment, business, or any other purpose indicating an intention to stay abroad for an indefinite period is considered a non-resident. From an Income Tax perspective, you are generally classified as an NRI for a financial year if you have not been in India for 182 days or more during that year. Understanding this distinction is vital because your residential status determines how regulations related to foreign investment, taxation, and banking will apply to you.

Key Regulations Governing NRI Investment: FEMA and FDI Policy

The two pillars of NRI business regulations India are FEMA and the FDI Policy. The Foreign Exchange Management Act (FEMA) is the primary legislation that governs all transactions involving foreign exchange, including the inflow of investment capital from NRIs. Its purpose is to facilitate external trade and payments and to promote the orderly development of the foreign exchange market in India. For an NRI investor, FEMA dictates how you can bring money into India for your business and how you can repatriate profits back to your country of residence.

Complementing FEMA is India’s Foreign Direct Investment (FDI) Policy, which is progressively liberalized by the government. FDI is an investment made by a person resident outside India in the capital of an Indian company. For NRIs, investments are treated on par with FDI. The policy classifies business sectors into two main routes for investment:

Automatic Route: This is the most straightforward path. Under this route, NRIs can invest in most sectors up to 100% without needing any prior approval from the Government of India or the Reserve Bank of India (RBI). Key sectors under the automatic route include IT and IT-enabled services, e-commerce marketplaces, manufacturing, consulting services, and healthcare.
Approval Route (or Government Route): Certain sensitive sectors require prior approval from the relevant government ministry or department before an investment can be made. These sectors include broadcasting, print media, multi-brand retail trading, and satellite operations. An NRI planning to enter these industries must file an application through the Foreign Investment Facilitation Portal (FIFP) to get the necessary clearance.

Choosing the Right Business Structure in India

Once you have a clear understanding of the legal framework, the next critical decision in the NRI business setup process is selecting the appropriate legal structure for your venture. The type of business entity you choose will have long-term implications for your liability, compliance burden, ability to raise funds, and overall operational flexibility. While several options exist, the most common and recommended structures for NRIs are the Private Limited Company and the Limited Liability Partnership (LLP), primarily due to the protection of limited liability they offer. You can explore a detailed comparison in our article on Private Company vs. LLP: Best Choice for NRI Entrepreneurs Limited. Making an informed choice at this stage is essential for starting a company as an NRI in India and aligning the business structure with your long-term strategic goals.

Private Limited Company (Pvt. Ltd.)

The Private Limited Company is by far the most popular and preferred business structure for NRIs and foreign investors in India. Its primary advantage is that it is considered a separate legal entity, distinct from its owners (shareholders). This means the company can own assets, incur debts, and enter into contracts in its own name. Most importantly, it offers limited liability, where the personal assets of the shareholders are protected from the company’s debts and losses; their liability is limited only to the amount of their investment in shares. This structure also enhances credibility with banks, vendors, and clients, and makes it significantly easier to raise equity funding from venture capitalists and angel investors in the future. However, there is a crucial mandatory requirement: a Private Limited Company must appoint at least one director who is a resident of India. A resident director is defined as a person who has stayed in India for a total period of not less than 182 days during the previous calendar year.

Limited Liability Partnership (LLP)

A Limited Liability Partnership (LLP) offers a compelling hybrid structure, combining the operational flexibility of a traditional partnership with the significant benefit of limited liability, similar to a Private Limited Company. In an LLP, the partners are not personally liable for the business’s debts, protecting their personal assets. Compared to a Private Limited Company, an LLP has fewer compliance requirements and lower administrative costs, making it an attractive option for professional services firms, consultants, and small to medium-sized businesses that do not intend to raise equity funding. The regulatory framework under the LLP Act, 2008 is simpler than the Companies Act, 2013. Similar to a Private Limited Company, an LLP also has a residency requirement. It must have at least two “Designated Partners,” one of whom must be a resident of India.

Sole Proprietorship & Partnership Firm

While Sole Proprietorships and Partnership Firms are simple to start for Indian residents, they are generally not recommended for NRIs. A Sole Proprietorship is not a separate legal entity, meaning the owner and the business are one and the same. This exposes the owner to unlimited liability, putting their personal assets at risk for business debts. Furthermore, NRIs require specific prior approval from the Reserve Bank of India (RBI) to establish a proprietorship or partnership firm in India, which can be a complex and time-consuming process. These structures also cannot receive foreign investment and have limited scalability. Given the availability of superior, more secure options like a Private Limited Company or LLP, these traditional structures are typically avoided by non-resident investors.

Feature	Private Limited Company	Limited Liability Partnership (LLP)	Sole Proprietorship / Partnership
Liability	Limited to share capital	Limited to contributed capital	Unlimited (Personal assets at risk)
Legal Status	Separate Legal Entity	Separate Legal Entity	Not a Separate Legal Entity
Resident Director/Partner	Mandatory (At least 1)	Mandatory (At least 1)	Not Applicable
NRI Investment	Allowed under FDI (Automatic/Approval)	Allowed under FDI (Automatic/Approval)	Requires specific RBI approval
Fund Raising	Easy (Can issue shares)	Difficult (Cannot issue shares)	Difficult (Depends on personal credit)
Compliance Burden	High (Board meetings, audits, MCA filings)	Moderate (Annual statement, filings)	Low (Mainly tax filings)
Recommendation for NRIs	Highly Recommended	Recommended for services/SMEs	Not Recommended

The Step-by-Step Guide for NRI Business Setup Process

With the foundational decisions made, it’s time to move to the practical execution of the business registration process India. The Indian government, through the Ministry of Corporate Affairs (MCA), has significantly streamlined company formation with the introduction of integrated electronic forms. This section provides a clear, actionable checklist that breaks down the entire process into manageable steps. Following this step-by-step guide for NRI business setup will ensure that all legal and procedural requirements are met efficiently, paving the way for a successful launch of your Indian enterprise.

Step 1: Fulfilling the Resident Director Requirement

This is the non-negotiable first step for incorporating a Private Limited Company or an LLP. As mandated by the Companies Act, 2013, you must appoint at least one individual who qualifies as a resident of India to act as a director (for a company) or a designated partner (for an LLP). This person must have stayed in India for a minimum of 182 days in the immediately preceding calendar year. This resident director will be equally responsible for all statutory compliances of the company. It’s crucial to identify a trustworthy and reliable individual—be it a family member, friend, or professional associate based in India—who can fulfill this role and provide their documents (like PAN card and address proof) for the incorporation process.

Step 2: Obtaining DSC and DIN

Before you can file any electronic forms with the MCA, all proposed directors, including the NRI director(s), must obtain a Digital Signature Certificate (DSC) and a Director Identification Number (DIN).

DSC (Digital Signature Certificate): This is the digital equivalent of a physical or handwritten signature. It is required to sign and file all electronic documents on the MCA portal securely. The DSC is issued by certified authorities in the form of a USB token.
DIN (Director Identification Number): This is a unique 8-digit identification number that is mandatory for any individual intending to become a director in a company. A person can have only one DIN, which remains valid for their lifetime.

For NRIs, the application process for DSC and DIN requires submitting copies of their passport and a valid address proof (such as a driver’s license, bank statement, or utility bill). Crucially, these documents must be notarized by a public notary in their country of residence and then apostilled as per the Hague Convention, or consularized by the Indian Embassy if the country is not a signatory. The experts at TaxRobo Company Registration Service can guide you through this documentation and application process seamlessly.

Step 3: Company Name Reservation via RUN service

Once the DSCs are ready, the next step is to reserve a unique name for your proposed company. This is done through the RUN (Reserve Unique Name) web service on the Ministry of Corporate Affairs (MCA) portal. You can propose two names in order of preference. It’s essential to choose a name that is unique, not deceptively similar to an existing company or trademark, and compliant with the naming guidelines prescribed in the Companies (Incorporation) Rules, 2014. The name should reflect the main objects of your business and should not be offensive or undesirable in the opinion of the Central Government. You can check for name availability on the official MCA portal before applying.

Step 4: Drafting MoA and AoA

After the name is approved by the Registrar of Companies (ROC), the next crucial task is to draft the constitutional documents of the company: the Memorandum of Association (MoA) and the Articles of Association (AoA). These documents are foundational to the company’s existence and governance.

MoA (Memorandum of Association): This charter document defines the company’s objectives, the scope of its business activities, the state in which the registered office will be located, and the authorized share capital. It essentially tells the outside world what the company is formed to do.
AoA (Articles of Association): This document outlines the internal rules, regulations, and bylaws for the management of the company. It governs internal affairs such as the powers of directors, the procedure for conducting board meetings, the rights of shareholders, and the process of share transfer.

These documents must be drafted with utmost care to align with the company’s long-term vision and must be digitally signed by all the subscribers (the initial shareholders), including the NRI.

Step 5: Filing for Incorporation with the SPICe+ Form

This is the most critical step in the NRI company formation steps. The Indian government has integrated multiple registration processes into a single, comprehensive web form called SPICe+ (Simplified Proforma for Incorporating Company Electronically Plus). This form has revolutionized the business registration process India by combining applications for various services into one filing, making the process faster and more efficient.

The SPICe+ form is divided into two parts and bundles the following essential registrations:

Company Name Reservation (if not done separately via RUN)
Company Incorporation
Allotment of Director Identification Number (DIN)
Application for Permanent Account Number (PAN)
Application for Tax Deduction and Collection Account Number (TAN)
Mandatory GSTIN (Goods and Services Tax Identification Number) application
Professional Tax Registration (for certain states like Maharashtra)
Opening of a corporate bank account

All the drafted documents, including the MoA, AoA, and declarations from directors, are attached to the SPICe+ form and filed electronically on the MCA portal.

Step 6: Post-Incorporation Compliances

Receiving the Certificate of Incorporation from the Registrar of Companies is a major milestone, but the process doesn’t end there. There are a few immediate post-incorporation steps that are mandatory to ensure the company is fully operational and compliant.

Depositing Share Capital: The subscribers to the Memorandum of Association must deposit their respective share capital contribution into the company’s newly opened bank account.
Filing for Commencement of Business: Within 180 days of incorporation, the company must file a declaration with the ROC in Form INC-20A, verifying that the share capital has been received. Only after obtaining the Certificate of Commencement of Business can the company legally start its business operations and borrow funds.
Applying for Other Licenses: Depending on the nature of your business, you may need to apply for specific industry licenses, such as an FSSAI license for a food business, a Trade License from the local municipality, or an Import Export Code (IEC) for international trade.

Managing Finances: Banking and Tax Considerations

Successfully setting up your company is just the beginning. For an NRI entrepreneur, managing the financial aspects—from bringing in initial capital to handling profits and taxes—is just as critical as the operational side. Understanding the specific banking channels, repatriation rules, and tax liabilities applicable to non-residents is essential for seamless financial management and long-term success. This section addresses the key financial considerations that are unique to NRIs and will help you navigate the monetary landscape of your new Indian venture effectively.

Opening the Right Bank Account: NRE vs. NRO

One of the first financial decisions an NRI investor needs to make is choosing the right type of bank account to manage funds. There are two primary types of accounts available for NRIs, and they serve very different purposes.

NRE (Non-Resident External) Account: This account is used to park your foreign currency earnings. You can deposit funds into an NRE account in any foreign currency, which is then converted into Indian Rupees (INR). The most significant advantage of an NRE account is that both the principal amount and the interest earned are freely and fully repatriable (can be transferred back to your country of residence) without any restrictions. The interest earned on an NRE account is also tax-free in India. This is the ideal account for bringing in the initial share capital for your company.
NRO (Non-Resident Ordinary) Account: This account is designed to manage your income earned in India, such as salary, rent, dividends, or business profits. Funds in an NRO account can be deposited in either Indian or foreign currency. However, the repatriation of funds from an NRO account is restricted. While the interest earned is repatriable (after tax), the principal amount can only be repatriated up to a limit of USD 1 million per financial year, subject to the submission of required documents and payment of applicable taxes. Interest earned on an NRO account is taxable in India.

For your business, it is advisable to bring the initial investment capital through an NRE account into the company’s corporate bank account to ensure clear documentation and ease of future repatriation.

Repatriation of Funds and Profits

Repatriation refers to the process of sending money earned in India back to your country of residence. This is a key concern for any foreign investor. For an NRI who has invested in a Private Limited Company through the automatic route, the process is quite straightforward. Profits can be repatriated in the form of dividends declared by the company. The company pays dividends to its shareholders (including the NRI) after paying the applicable Corporate Tax on its profits. The dividend income in the hands of the NRI shareholder is then taxed at a specified rate. Once all applicable taxes are paid, the net amount can be freely repatriated abroad. Similarly, the proceeds from the sale of shares (capital gains) can also be repatriated after the payment of capital gains tax.

Tax Liabilities and DTAA

Any income that arises or accrues in India is taxable in India, regardless of the residential status of the recipient. Therefore, the profits generated by your Indian company will be subject to Indian corporate tax laws. Similarly, any salary or dividend income you receive from the company will be taxable in your hands in India. You can learn more in our Complete Guide to Income Tax for NRIs: Filing Requirements and Benefits. This can raise concerns about double taxation—being taxed on the same income in both India and your country of residence.

To prevent this, India has signed Double Taxation Avoidance Agreements (DTAAs) with over 90 countries. A DTAA is a tax treaty that allocates taxing rights between two countries to avoid taxing the same income twice. If you are a resident of a country that has a DTAA with India, you can claim tax relief. The DTAA specifies which country has the primary right to tax a particular type of income and provides for a tax credit in the other country for the taxes already paid. This ensures that you are not unfairly burdened by paying taxes on the same income in two different jurisdictions. You can get expert advice on DTAA benefits through an Online CA Consultation Service.

Conclusion

Embarking on the journey of starting a business in India is an exciting prospect filled with immense potential. While the path may seem layered with regulations, the NRI business setup process is a structured and well-defined procedure. By understanding the legal ground rules set by FEMA and the FDI policy, carefully choosing the right business structure like a Private Limited Company for its liability protection, and methodically following the step-by-step guide for NRI business setup using the integrated SPICe+ form, you can confidently lay a strong foundation for your venture. The key is to be diligent with documentation and compliance at every stage.

Navigating these steps, especially the nuances of notarization, legal drafting, and post-incorporation compliances, can be challenging from abroad. Partnering with a professional firm can transform this complex process into a smooth, efficient, and error-free experience.

Ready to turn your Indian business dream into a reality? Contact the experts at TaxRobo today for end-to-end assistance with your company formation.

Frequently Asked Questions (FAQs)

Q1: Is it mandatory to have an Indian resident as a director to start a company in India?
A: Yes, for a Private Limited Company, the Companies Act, 2013 mandates having at least one director who is a resident of India. An Indian resident is someone who has stayed in India for 182 days or more in the previous calendar year. The same residency requirement applies to a Designated Partner in an LLP.
Q2: Can an NRI own 100% of a company in India?
A: Yes, in many sectors covered under the “Automatic Route” of the FDI policy, an NRI can hold 100% of the shares in a Private Limited Company. This includes popular sectors like IT services, software development, consulting, e-commerce marketplaces, and most manufacturing activities. You can be the sole shareholder if you wish.
Q3: What are the primary documents an NRI needs to submit for company registration?
A: The primary documents required from an NRI director/shareholder are:
- Copy of Passport (which must be notarized and apostilled/consularized).
- Copy of a valid address proof, such as a driver’s license, utility bill, or bank statement (which must also be notarized and apostilled/consularized).
- Recent passport-sized photographs.
For a complete checklist, please see our detailed list of Documents Required for Incorporation of a Company.
Q4: How long does the entire NRI business setup process typically take?
A: With all documents correctly prepared and apostilled, the process can be quite efficient. From obtaining the DSC/DIN to receiving the final Certificate of Incorporation through the SPICe+ form, the timeline is typically around 15-25 working days. This can vary depending on the processing times at the Registrar of Companies and the speed at which you provide the necessary documents.

NRI Business Setup Process: A Step-by-Step Guide!