Advantages and Disadvantages of Incorporating a Company in India for US Entrepreneurs | An honest and transparent opinion for American Companies & US based Businesses for their success in India
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Introduction:
For US Entrepreneurs, India is the best base for business expansion not only in Asia but all over the world. They can utilize the local resources and enhance their business globally. India is a developing country with an abundance of manpower and skilled labor. It has excellent infrastructure and highly developed I.T, which is important for a company. India has become the go-to option for foreign entrepreneurs to expand their businesses. In the recent past, many entrepreneurs and businessmen from the US, particularly from New York and California, have entered the Indian market to expand their business. In this article, we will look at some of the major advantages and disadvantages of incorporating a company in India.
Advantages:
The following are some of the major advantages of incorporating a company in India. These advantages are framed in general and also with a view to explain the benefits that a US entrepreneur can enjoy by incorporating a company in India:
1. Cost-effective: India has abundance of work force and you can acquire the services of skilled labours and hire professionals for a relatively cheaper prices as compared to the US. India is a developing I.T hub and has skilled professional in this industry the services of which can be utilized by your company.
2. Market size: India is one of the most populated countries in the world, which speaks for the large market size. In a market as big as India, you can easily find clients and customers for your services and products. Proper marketing in India can make your company/brand a global brand.
3. Economic conditions: India is the 3rd largest economy in terms of purchasing power and 5th largest in term sof GDP. These are very attractive numbers for any foreign investors. Also the government initiative of Make in India and Start-up India have encouraged for more industrial establishment and incorporation of more companies.
4. Location: India is one of the largest countries in the world, at the same time it is a gateway into the Asian market. By establishing your business in India, by incorporating a company in India, you can expand your business throughout asia.
5. Different Sectors: There are a number of sectors in the Indian Market such as healthcare, technology, infrastructure, software, telecom, defense, transport, automobile, etc., with such a vast option, investor and entrepreneurs can choose any sector and incorporate a company. One can incorporate companies in more than one sector.
6. Technological benefits: As mentioned earlier, India is an I.T. hub. The software technology present in the country is one of the latest. There are many foreign companies who collaborate with Indian companies to develop new technologies.
7. Legislations/Laws: The Companies Act 2013 governs all the companies in India. The Act lays down rules for every aspect of the company. The rules and regulations are stringent and there are mandatory compliances that a company shall complete. Investors usually prefer such companies which are governed by strict laws which protect their investments.
8. Government programs: The Indian Government from time to time announces different schemes and policies to encourage foreign investors to enter the Indian market. The government has relaxed the regulations of Foreign Direct Investment in a few sectors. Foreign individuals/companies can invest in these sectors without any prior approvals. US entrepreneurs having a company in India can also acquire funds and investment from foreign sources.
Disadvantages:
1. Managing your market: With such a wide and large market, it is not an easy task to manage your customers market. One might face several difficulties in maintaining a good and consistent supply chain. When you open a business/company in a new place/country, it is hard to find the best vendor for your services and products. You will need a vendor who can take your products and services to the right audience and to a greater extent of the market (reach as many people as possible).
2. Compliances: As mentioned above, the rules and regulations governing the companies are very stringent. Therefore, it can be a little difficult to ensure that your company has complied with all the laws. Failure/default in compliance can result in heavy penalties and punishments.
3. Although the infrastructure in India has been developing rapidly in the recent past, it can be challenge to connect to different cities and states for transportation of materials and supply for goods. These challenges can be resolved by identifying the best place to incorporate/open your company. A location which has good connectivity should be your choice.
4. Linguistic challenges: It is definitely a challenge for any foreigner to come to India and engage with the locals as there will be a language barrier. Especially, when you come to incorporate a company, it is even a difficult task. Now this issue can be solved by hiring translators and local people who can act as mediators but even though there would still be issues as there is always a kind of communication gap between the owner and the members, employees, and customers of the client.
5. Taxation: In India, taxes are collected under the Goods and Service Tax Act. In many cases, the taxes are applied different levels making it double taxation. For example, when a company earns profits, it must pay tax in the name of corporate tax; and when the profits are distributed among the members, it is taxed in their hands under the dividend distribution tax.
6. Human Resource: When there are many skilled labourers and there are various industries and companies, there is always a competition to retain the best professionals and manpower. Thus the companies shall offer a competitive package to retain their employees. The company shall offer packages with good benefits to ensure there is good, happy and positive relationship and environment in the company.
Conclusion:
US entrepreneurs from New York, New Jersey, California, and Texas who wish to expand their business should pick India as their destination and incorporate a company in India. With the technological, professional, infrastructural, and many other benefits your business can grow rapidly. It is important to understand all the factors before choosing a business, it is also important to choose where in India will you incorporate a company. Examine all possibilities and options carefully and for better guidance seek help from a local legal advisor. A learned professional who is well versed with all the laws, rules and regulations can help you in choosing the best business structure and ensure that your company/business is in compliance with the laws. With Globalisation and increasing friendship between India and the US, it is a good opportunity for US businesses to enter the Indian market.
FAQs: on Setting-up Business in India by US Citizens & US based Companies:
1. What are the benefits of choosing India for expansion of business?
Ans: Wide and huge market base, abundance of labour and work force, technology, infrastructure, and tax benefits. These are some of the main benefits that a US entrepreneur can enjoy by incorporating a company in India.
2. Which sector in India is best for investment and business for US entrepreneurs?
Ans: In the last 5 years, US entrepreneurs have shown interest in Software and infrastructure sectors in India. There has been a significant increase in the amount of FDI coming into India from the US.
3. What are the major legislations or regulatory authorities governing the companies in India?
Ans: Companies Act 2013 is the governing law for all the companies in India. Apart from the companies act, US entrepreneurs should adhere to the rules and regulations of Reserve Bank of India, Foreign Exchange Management Act (FEMA), and other laws as prescribed by the Indian Government.
Authored by: Adv. Anant Sharma & Inayat Ahmed
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