India remains a market with rapid-growth potential despite the inflationary pressures and fallout from the euro-zone crisis that have slowed economic growth substantially since the end of 2011. The country, the world's second-most populous, has an expanding middle class of consumers, an improving infrastructure, and a young, innovative workforce.
Ernst & Young's most recent Global Capital Confidence Barometer rated India No. 3 among top investment destinations, behind China and the United States and ahead of Brazil and Germany. But in India, regulations can be cumbersome, enforcing contracts is difficult, and corruption remains a problem, according to an E&Y risk assessment for rapid-growth markets. To help navigate the obstacles, JofA Senior Editor Sabine Vollmer asked Vikas A. Sekhri, lead tax director of transactional advisory services at accounting and consulting firm McGladrey, to provide a perspective on India's business and accounting environment.
Vollmer: What are the available forms of organization for doing business in India (simplest to mast complex)?
Sekhri: The principal forms of business organizations are sole proprietorships, partnership firms (legal entities that do not have to be registered if they consist of fewer than 20 partners), limited liability companies (public and private), limited liability partnerships, trusts, and liaison offices, project offices, or branch offices of foreign corporations. Out of these, the most commonly used by foreign businesses are limited liability companies, branch offices, liaison offices, and project offices.
The choice of entity depends on various factors, including ease in setting up, type of activities intended to be performed in India, and need to obtain government approvals. Branch offices, liaison offices, and project offices can be characterized as unincorporated forms of businesses that foreign entities are allowed to have in India. These unincorporated forms are typically chosen by the foreign entities if they expect to have limited operations in India, at least in the short term. The activities that can be undertaken within these unincorporated forms are generally limited. Foreign companies engaged in manufacture and trading activities abroad have been allowed to set up branch offices in India. While the branch offices in India cannot be engaged in manufacturing or processing activities in India and cannot be engaged in retail trading, those offices can import/export goods, render professional or consulting services, carry out research work, and act as buying or selling agents for the foreign parent or other foreign group companies. Approvals from the Reserve Bank of India, India's central bank, are required to set up branches or liaison offices.
If a foreign entity wants to undertake any activities in India that are beyond the scope of a branch, liaison office, or a project office, then it should consider setting up a corporate subsidiary in India--either wholly owned or with a joint venture partner. Government approvals might be required to set up an Indian subsidiary primarily depending upon the nature of the business of the entity.
Vollmer: What do companies need to understand about protecting intellectual property in India?
Sekhri: As a founding member of the World Trade Organization, India has ratified the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). TRIPS requires member countries to abide by the mutually negotiated norms and standards with respect to intellectual property rights. To this effect, India has a comprehensive set of initiatives to streamline its intellectual property rights regime. These initiatives include introducing new laws and amending existing laws to protect the intellectual property of the holders. Further, an office has been set up under the Department of Industrial Policy & Promotion to administer all matters relating to patents, designs, and trademarks. A copyright office has also...