Set up a business in India: 2026 legal guide

Law stated as at 20 September 2026. This is general information, not legal or tax advice. Sectoral rules, investment routes and filing requirements can change, and the correct structure depends on the facts.

Why the structure must follow the operating model

The first question is not, "How quickly can we register a company?"

It is, "What will the India operation actually do?"

A sales team that only introduces overseas personnel to prospective customers creates a different legal footprint from an Indian entity that signs contracts, collects rupees, employs engineers, owns inventory or provides regulated services. A foreign software company selling remotely into India may not need the same structure as a marketplace onboarding Indian sellers or a manufacturer building a local supply chain.

Before choosing an entity, map six flows:

Contracts: Which entity will sign with customers, vendors and workers?
Money: Who invoices, collects, pays, remits and bears refunds or bad debt?
People: Who employs or engages the India team and directs its work?
Intellectual property: Who owns the technology, brand, content and local developments?
Data: Which entity decides why personal data is used, and where is it stored or accessed?
Risk: Which entity carries product, consumer, employment, tax and regulatory exposure?

If these answers do not match the proposed structure, incorporation will not fix the problem. It will merely give the mismatch a company number.

India entry options for a foreign company

The main routes are compared below.

Structure	Separate Indian legal entity?	Can ordinarily earn Indian revenue?	Common use	Main limitation
Wholly owned subsidiary	Yes	Yes	Long-term operating business, hiring, local contracts and investment	Full Indian corporate, tax and regulatory compliance
Joint venture company	Yes	Yes	Entry with an Indian commercial or strategic partner	Governance, reserved matters, transfer and exit must be negotiated carefully
Limited liability partnership	Yes	Yes	Professional or service models in eligible sectors	Foreign investment is limited to sectors with 100% automatic-route FDI and no FDI-linked performance conditions
Branch office	No	For permitted activities	Limited extension of the foreign parent into India	Parent remains exposed; activities and approvals are restricted
Liaison office	No	No	Representation, communication and market study	Cannot undertake commercial activity or earn income in India
Project office	No	Only for the approved project	Execution of a specific Indian project	Tied to the project and applicable FEMA conditions
Direct cross-border supply	No	Yes, from abroad	Testing demand or serving India without local operations	Tax presence, GST, consumer, data and agency risks can still arise

Wholly owned subsidiary in India

An Indian private limited company owned by a foreign parent is usually the most adaptable structure for a sustained India operation. It can employ people, enter local contracts, open bank accounts, invoice customers, hold assets and receive foreign investment, subject to the applicable FDI rules.

The subsidiary is legally separate from its foreign parent. That separation is useful, but it is not absolute. Parent guarantees, intercompany arrangements, control over Indian personnel, transfer pricing and the conduct of the parties can move risk across the group.

A private company ordinarily needs at least two members and two directors. At least one director must satisfy India's resident-director requirement. Foreign subscribers and directors should also plan for notarisation, apostille or consularisation of documents executed abroad, as applicable.

Joint venture company

A joint venture can provide local distribution, regulatory knowledge, facilities, relationships or capital. The commercial benefit is real only if the documents deal with the difficult moments in advance.

The shareholders' agreement and constitutional documents should address:

board composition and voting;
reserved matters;
business plans and funding obligations;
ownership and licensing of pre-existing and newly developed IP;
related-party transactions;
information and audit rights;
non-compete and conflict questions, where enforceable;
deadlock;
transfer restrictions;
default; and
exit.

A 50:50 ownership split without a workable deadlock mechanism can turn an ordinary disagreement into paralysis.

Limited liability partnership

An LLP offers a separate legal entity with a partnership-style internal arrangement. Foreign investment is permitted in LLPs operating in sectors where 100% foreign investment is allowed under the automatic route and there are no FDI-linked performance conditions.

An LLP may suit some advisory, professional or service businesses. It is often less familiar to institutional investors and may not fit a company that expects to issue employee equity or raise multiple funding rounds.

Branch, liaison and project offices

These offices remain extensions of the foreign entity rather than separate Indian companies.

A liaison office may represent the parent and coordinate communication, but it cannot conduct commercial activity or earn Indian income. A branch office may perform specified activities, subject to the FEMA framework and the terms of its approval. A project office is ordinarily established to execute a specific project in India and is tied to that project.

These routes can be useful, but their restricted purpose must match actual conduct. A liaison office that begins negotiating and performing revenue-generating contracts creates risks that its label cannot cure.

Selling into India without an Indian entity

A foreign business may be able to contract directly with Indian customers, particularly during an early market test. That does not mean India law is irrelevant.

Direct sales can still raise questions about:

a permanent establishment or other taxable presence;
GST registration and place-of-supply rules;
withholding tax;
the authority of Indian agents or personnel;
consumer protection;
import and customs responsibility;
regulated products or services;
data protection and cybersecurity; and
enforcement of contracts and payment.

"No Indian company" is an entity answer, not a complete market-entry answer.

The 12-step India market entry legal checklist

1. Define the Indian activity before choosing the entity

Write a one-page operating model covering the product or service, customer, sales channel, contracting entity, payment path, local team, supply chain, data flows and expected first-year activity.

This document should be specific. "Business development" is not enough. State whether Indian personnel will negotiate price, conclude contracts, provide implementation, handle customer complaints or manage inventory. Those facts influence corporate, tax, employment and regulatory analysis.

2. Check the sector, FDI cap and entry route

Foreign investment in India operates through the automatic route or the government route. Under the automatic route, prior government approval is not required, although sectoral conditions and reporting still apply. Under the government route, approval is required before the investment proceeds.

The RBI Master Direction on Foreign Investment in India, updated through 15 June 2026, states that activities not listed in the relevant schedule are generally open to 100% foreign investment under the automatic route, subject to applicable law and conditions. That general rule has important exceptions.

The exact activity matters. For example, the current framework distinguishes between marketplace and inventory-based ecommerce. Foreign investment is not permitted in the inventory-based model, while a marketplace model is subject to its own conditions. A platform cannot avoid that distinction merely by calling itself a technology company.

Before incorporation, confirm:

the precise business activity;
the applicable sectoral cap;
automatic or government route;
licensing conditions;
ownership and control requirements;
pricing rules;
downstream investment implications; and
whether the planned revenue model changes the classification.

3. Trace ownership and beneficial ownership

The immediate shareholder is not the end of the ownership review. Trace the chain to the natural persons, funds or public ownership behind the investor and identify rights that may amount to control.

India revised part of its framework for investors with ownership links to countries sharing a land border with India. According to the Ministry of Commerce and Industry's 21 August 2026 release, non-controlling ownership of up to 10% from such countries may now proceed under the automatic route, subject to reporting, sectoral caps and other conditions. The test is fact-sensitive, particularly where governance rights or indirect holdings are involved.

Do not leave this review until the bank requests a chart. Ownership, control, sanctions, know-your-customer records and source-of-funds documents should be assembled before money moves.

4. Choose the entity and governance structure

Entity choice should reflect the next three years, not only the cheapest incorporation route.

For a company, decide:

authorised and initial capital;
shareholding;
board composition;
who will satisfy the resident-director requirement;
reserved matters;
signing authority;
parent oversight;
founder or employee equity plans;
intercompany services and IP arrangements; and
future funding and exit.

The constitutional documents, shareholders' agreement and board framework should agree. A right written only in an overseas term sheet may not operate correctly within the Indian company.

Read more about Saya & Associates' cross-border and India-entry practice and its work for startups and emerging companies.

5. Prepare incorporation and foreign-executed documents

Company incorporation is completed through the Ministry of Corporate Affairs system. Foreign subscribers and directors may need identity, address, constitutional and authorisation documents prepared in the prescribed form and notarised, apostilled or consularised depending on where they are executed.

Plan for:

name availability;
digital signatures;
director identification requirements;
registered office evidence;
foreign parent resolutions;
subscriber documents;
translated documents, where required;
beneficial ownership declarations;
constitutional documents; and
linked registrations available through the incorporation process.

Document formalities are a common source of delay. Check them before signatures are collected across time zones.

6. Document and report the foreign investment

The bank transfer is only one step. The company must correctly document receipt, allot the permitted instrument, apply the pricing rules and complete the prescribed FEMA and company-law filings within the relevant timelines.

The investment file may include:

subscription or investment agreement;
valuation material;
know-your-customer records;
board and shareholder approvals;
allotment documents;
share certificates and registers;
beneficial ownership records;
RBI/FIRMS reporting; and
annual foreign-liability reporting, where applicable.

Equity, compulsorily convertible instruments, optionally convertible debt and shareholder loans are not interchangeable. Their treatment under company law and FEMA differs. Choose the instrument before sending funds.

7. Build the tax position alongside the legal structure

Corporate and tax structuring should be done together. The legal entity determines who signs and bears liability; tax analysis determines where profits, payments and activities may be taxed.

Review at least:

corporate income tax;
permanent establishment exposure for the foreign parent;
transfer pricing for intercompany transactions;
withholding tax;
GST registration and invoicing;
customs and import valuation;
dividend, royalty, service-fee and interest flows;
applicable tax treaty; and
payroll and employee taxation.

An intercompany services agreement should describe the real work, pricing method, ownership of deliverables and invoicing. It should not be drafted after the first transfer-pricing notice.

8. Put the operating contracts in place

The Indian entity needs more than articles of association. It needs the contracts through which it will sell, buy, hire, license and manage risk.

Depending on the business, the first contract set may include:

customer or SaaS agreement;
website or app terms;
distributor, reseller or referral agreement;
vendor and procurement terms;
logistics or fulfilment agreement;
marketplace seller agreement;
employment and contractor agreements;
IP assignment and licence agreements;
intercompany services and cost-sharing arrangements;
data processing terms; and
confidentiality agreements.

Check governing law, jurisdiction, dispute resolution, payment currency, tax deductions, acceptance, change control, warranties, indemnities, liability and termination as one allocation of risk. The firm's guide to seven contract clauses that prevent litigation explains the recurring pressure points.

9. Secure intellectual property before launch

Confirm who owns the brand, software, domain, product content, designs, customer material and work created by employees or contractors.

A foreign parent may retain global IP and license it to the Indian subsidiary. Alternatively, the Indian entity may develop or own specified assets. Either model should be documented and priced consistently with tax and transfer-pricing advice.

Before public launch:

search and protect key trademarks;
execute IP assignments from founders and developers;
review open-source software obligations;
document intra-group licences;
protect confidential information; and
decide who will enforce rights in India.

Paying a developer does not, by itself, answer every ownership question.

10. Set up employment and workplace compliance

An Indian team creates obligations from the first hire. The applicable rules depend on the state, establishment, role, headcount and benefits structure.

Prepare:

employment agreements;
confidentiality and IP clauses;
contractor classification criteria;
compensation and benefits terms;
leave and workplace policies;
payroll registrations;
provident fund, employee state insurance, gratuity and bonus analysis where applicable;
prevention of sexual harassment compliance and an Internal Committee where the threshold is met;
disciplinary and grievance procedures; and
exit documentation.

Avoid treating a full-time, controlled role as an independent contractor merely because the parent has not completed local payroll setup. The label must match the working relationship.

11. Map data, cybersecurity and digital regulation

An India entry often creates a new data role before anyone notices it. The Indian entity may collect employee, customer, seller, payment, device or support data and share it with the parent or global vendors.

Map:

categories of personal data;
purposes and legal permissions;
notices and consent flows;
parent-subsidiary and vendor transfers;
security controls;
breach response;
retention and deletion;
children's data, if relevant;
grievance and rights handling; and
sector-specific localisation or cybersecurity duties.

India's Digital Personal Data Protection framework is not identical to the GDPR. A global privacy programme is a useful starting point, not a substitute for Indian analysis. See the firm's detailed comparison of India's DPDP Act and the GDPR.

12. Create a licensing and compliance calendar

The licence map depends on what the company actually sells. Financial services, payments, food, health, education, telecom, media, defence, ecommerce, imports, consumer goods and other regulated activities can add central, state and local requirements.

The calendar should assign an owner and evidence location for:

company-law filings;
foreign investment reports;
tax and GST returns;
payroll and labour filings;
licences and renewals;
board and shareholder actions;
related-party approvals;
beneficial ownership updates;
data and cybersecurity obligations;
insurance; and
contract renewal or notice dates.

Compliance is easier to run when each obligation has a responsible person, a due date and a record proving completion.

Common mistakes foreign companies make when entering India

Incorporating before checking the FDI classification

The business description used for incorporation may be broad, while the actual product falls within a regulated activity or a sector with conditions. Classification should precede funding and launch.

Using a liaison office as a sales operation

A liaison office cannot conduct commercial activity. Actual conduct, including negotiation and performance, matters more than an internal job title.

Letting the India team bind the foreign parent accidentally

Employees, consultants and agents may create authority, contractual or tax exposure through what they do. Signing limits and escalation rules should be clear to personnel and counterparties.

Sending funds before choosing the instrument

Money received as equity, debt, advance or service income follows different rules. Re-characterising an undocumented transfer later can be slow and expensive.

Copying the global contract set

Global templates may assume the wrong tax mechanics, dispute forum, consumer standard, employment structure or data role. Adapt the operating contract, not only the governing-law clause.

Treating incorporation as completion

The company may exist while its bank, tax, IP, employment, contract, data and licensing layers remain unfinished. Build a launch checklist with a named owner for every dependency.

How long does it take to set up a foreign-owned company in India?

There is no reliable universal timeline. A straightforward automatic-route company with prepared documents can move faster than a regulated business, joint venture or structure requiring overseas documents, government approval or complex bank review.

The timeline usually depends on:

name and activity review;
document execution and apostille;
digital signatures and director formalities;
beneficial ownership checks;
incorporation processing;
bank know-your-customer review;
foreign investment and allotment steps;
tax and operating registrations;
licences; and
readiness of contracts, payroll and premises.

The fastest safe route is to run legal, tax, banking and operational workstreams in parallel after the structure is settled.

Documents to prepare before the first legal scoping call

A foreign company can make the initial analysis faster by preparing:

a group ownership chart through to ultimate beneficial owners;
constitutional documents of the investing entity;
a one-page India operating model;
the proposed product or service description;
expected customers and sales channels;
payment, invoicing and currency flows;
proposed Indian founders, directors, employees or partners;
first-year hiring and revenue estimates;
IP and data-flow diagrams; and
target launch date and states of operation.

Do not send sensitive or privileged material before the firm confirms the engagement and completes a conflict check. A high-level factual summary is enough for initial scoping.

Frequently asked questions

Can a foreign company own 100% of an Indian company?

Often, yes. Many sectors permit 100% foreign investment under the automatic route. Some sectors have caps, conditions, ownership or control requirements, government approval, or prohibitions. The business activity and ownership chain must be checked before investment.

Is a wholly owned subsidiary better than a branch office in India?

A subsidiary is a separate Indian legal entity and is generally more flexible for local hiring, contracts, investment and long-term operations. A branch is an extension of the foreign parent, has restricted permitted activities and can expose the parent more directly. The better structure depends on the intended activity and tax position.

Does a foreign director need to live in India?

Foreign nationals may be directors of an Indian company, subject to applicable documentation and identification requirements. An Indian company must also satisfy the resident-director requirement under the Companies Act. The board should be planned before incorporation rather than solved after filing.

Can a foreign company test the Indian market without incorporating?

It may be possible to sell cross-border, use an independent distributor or establish a properly limited liaison presence. The model must be reviewed for permanent establishment, agency, GST, consumer, import, employment, data and sector-specific risk.

Can an Indian subsidiary pay fees or royalties to its foreign parent?

Potentially, yes, if the arrangement reflects real services or rights and complies with company law, FEMA, tax, transfer-pricing, withholding and contractual requirements. The agreement, pricing and evidence should be in place before payments begin.

What is the first legal step for India market entry?

Prepare an operating-model map. Identify the activity, customer, contracting party, payment flow, India personnel, ownership, IP and data. That map allows legal and tax advisers to select the structure instead of guessing from a company-registration form.

A practical sequence for setting up a business in India

For most foreign entrants, the work should follow this order:

Map the Indian operating model.
Classify the activity and FDI route.
Verify ownership, control and beneficial ownership.
Compare entity and non-entity entry options.
Align legal, tax, banking and regulatory advice.
Incorporate or obtain the relevant office approval.
Document and report the investment.
Put bank, tax, payroll, contract, IP and data systems in place.
Obtain sector and location-specific licences.
Launch only when the entity, product flow and documents tell the same story.

The legal work is not meant to slow market entry. Done in the right order, it prevents the company from entering quickly through a structure it later has to unwind.

Planning an India entry

Saya & Associates advises on India-entry structures, foreign investment documentation, corporate governance, commercial contracts, intellectual property, employment, data protection and disputes. Where a matter requires specialist foreign-jurisdiction, accounting, customs or sector-specific advice, the work can be coordinated with the relevant adviser.

An initial enquiry should identify the proposed activity, ownership, expected customers, hiring plan and target launch date. Every engagement begins with a conflict check and a written scope. Information sent before an engagement is confirmed may not be protected by privilege.

Read about the firm's cross-border practice or send a high-level enquiry.

Setting up a business in India: a 2026 legal guide for foreign companies