Setting Up an Entity in India

For companies making a significant, long-term commitment to Indian talent (typically 30-50+ employees), establishing your own legal entity in India may become the right strategic move. This guide provides an overview of what’s involved, the options available, and what to expect.

When to Consider Your Own Entity

Setting up an entity makes sense when:

  • You’re hiring 30-50+ employees in India (EOR costs become substantial)
  • You’re committed to a multi-year presence with a large team
  • You want full control over employment policies, benefits, and operations
  • You’re establishing a Global Capability Center (GCC) or development center
  • You need to invoice Indian customers or do business locally in India
  • You’re making a strategic investment in India as a key market

Before reaching this point:

  • Start with contractors (1-10 people)
  • Transition to EOR for permanent employment (10-30 people)
  • Build proof of concept and validate long-term viability
  • Then consider entity setup for scale and control

Entity setup is expensive and complex—it’s not a starting point, it’s a scaling strategy.

India offers several entity structures for foreign companies. The most common for hiring tech talent:

1. Private Limited Company (Subsidiary)

What it is:

  • A fully-owned Indian subsidiary of your foreign parent company
  • Separate legal entity incorporated under Indian Companies Act
  • Most common structure for foreign companies establishing operations

Key Features:

  • Ownership: 100% foreign ownership allowed in most sectors
  • Limited liability: Parent company liability is limited to investment
  • Separate legal entity: Indian company with own PAN, bank accounts, etc.
  • Full operational control: Complete control over hiring, operations, policies
  • Can do business in India: Can invoice customers, sign contracts, operate fully

Requirements:

  • Minimum 2 directors (at least 1 must be India resident)
  • Minimum 2 shareholders
  • Minimum paid-up capital: ₹1 lakh (~$1,200) but typically invest much more
  • Registered office in India
  • Compliance with Companies Act, MCA filings, audits

Best for: Companies establishing GCCs, long-term operations, or planning to do business in India.

2. Liaison Office (LO)

What it is:

  • Representative office that acts as a communication channel between parent company and Indian entities
  • Cannot undertake commercial activities or generate revenue in India

Key Features:

  • Cannot hire employees directly for commercial work (only administrative staff)
  • Cannot generate revenue in India
  • Limited activities: Market research, liaison, promoting exports/imports
  • Needs RBI approval - Requires Reserve Bank of India approval to set up

Best for: Companies exploring the Indian market before full commitment. Not suitable for hiring tech talent at scale.

3. Branch Office (BO)

What it is:

  • Extension of the foreign parent company in India
  • Can undertake activities of the parent company but with restrictions

Key Features:

  • Can hire employees for permitted activities
  • Restricted activities: Mainly for parent company’s business activities in India
  • Cannot do retail trading or certain commercial activities
  • Needs RBI approval - Requires approval to establish
  • Parent company liable: Not a separate legal entity

Best for: Foreign companies with ongoing projects in India. Less common for pure tech talent hiring.

4. Limited Liability Partnership (LLP)

What it is:

  • Hybrid structure combining benefits of partnership and limited liability company
  • Easier compliance compared to Private Limited Company

Key Features:

  • Minimum 2 partners required
  • Lower compliance burden than Pvt Ltd Company
  • Cannot raise external funding easily
  • Suitable for professional services firms

Best for: Smaller operations, professional services. Not ideal for large tech teams or venture-backed companies.

Setting Up a Private Limited Company (Most Common Path)

For most foreign companies hiring Indian tech talent at scale, a Private Limited Company (wholly-owned subsidiary) is the standard choice.

What’s Involved

1. Obtain Digital Signature Certificate (DSC)

  • Required for directors to sign documents digitally
  • Obtained from authorized certifying agencies
  • Timeline: 1-2 days

2. Obtain Director Identification Number (DIN)

  • Unique identification for directors
  • Apply through MCA (Ministry of Corporate Affairs)
  • Timeline: 1-2 days

3. Company Name Approval

  • Propose company name and check availability
  • File with MCA for approval
  • Must be unique and comply with naming guidelines
  • Timeline: 2-3 days

4. File Incorporation Documents

  • Memorandum of Association (MOA)
  • Articles of Association (AOA)
  • Declaration by directors
  • Registered office proof
  • File with Registrar of Companies (ROC)
  • Timeline: 10-15 days

5. Obtain PAN and TAN

  • PAN: Permanent Account Number (tax ID)
  • TAN: Tax Deduction and Collection Account Number
  • Required for all tax-related activities
  • Timeline: 7-10 days

6. Open Bank Account

  • Corporate bank account in India
  • Requires company incorporation documents
  • Timeline: 1-2 weeks

7. Register for GST (if applicable)

  • Goods and Services Tax registration
  • Required if business turnover exceeds threshold or for certain activities
  • Timeline: 7-10 days

8. Register with Employees’ Provident Fund Organization (EPFO)

  • Mandatory if employing 20+ people
  • Required for PF contributions
  • Timeline: 1-2 weeks

9. Register for Employee State Insurance (ESI)

  • Mandatory if employing 10+ people (varies by state)
  • Required for ESI contributions
  • Timeline: 1-2 weeks

10. Register under Shops and Establishments Act

  • State-specific registration for commercial establishments
  • Required in state where office is located
  • Timeline: 1-2 weeks

Timeline and Costs

Typical Timeline:

  • Incorporation process: 4-6 weeks
  • Full operational setup: 2-3 months
  • Hiring first employees: 3-4 months from start

Typical Costs:

Incorporation and Setup:

  • Professional fees (lawyers, consultants): $10,000-$30,000
  • Government fees and compliance: $2,000-$5,000
  • Office setup (deposit, furniture, equipment): $20,000-$100,000+
  • Initial capital investment: Variable (typically $50,000-$500,000+)

Ongoing Annual Costs:

  • Compliance and accounting: $10,000-$30,000/year
  • Audit fees: $5,000-$15,000/year
  • Legal and regulatory filings: $5,000-$10,000/year
  • Office rent and operations: Variable based on location and size

Total first-year investment (excluding salaries): Typically $100,000-$500,000 for a small GCC setup. Large GCCs can cost $500K-$2M+.

Ongoing Compliance Requirements

Once established, you’ll need to manage:

Annual Filings:

  • Annual financial statements
  • Income tax returns
  • ROC annual return (Form AOC-4)
  • Board meeting minutes and resolutions

Regular Compliance:

  • Monthly/quarterly GST returns
  • Monthly TDS returns and payments
  • PF and ESI contributions (monthly)
  • Professional Tax (state-specific)
  • Board meetings (quarterly minimum)
  • Annual General Meeting (AGM)

Audit Requirements:

  • Statutory audit by Chartered Accountant (mandatory)
  • Tax audit (if turnover exceeds threshold)
  • Internal audits (recommended for larger operations)

You’ll need a full compliance team or outsourced partner to manage this.

What You’ll Need to Set Up

Key Resources

1. Local Director

  • At least one director must be India resident (lives in India 182+ days/year)
  • Common solutions:
    • Hire an India-based executive as director
    • Relocate a team member to India
    • Engage a professional director service (interim solution)

2. Registered Office

  • Physical office address in India (cannot be virtual)
  • Can be serviced office initially, but must be actual space
  • Required for official correspondence and compliance

3. Local Team

  • HR/Admin team - Manage payroll, benefits, compliance
  • Finance/Accounting - Bookkeeping, tax filings, audits
  • Legal/Compliance - Company secretary, regulatory filings
  • Either hire in-house or outsource to professional firms

4. Professional Advisors

  • Corporate lawyer - For incorporation, contracts, compliance
  • Chartered Accountant (CA) - For accounts, taxes, audits
  • Company Secretary - For MCA filings and corporate governance
  • HR consultant - For employment policies, labor law compliance

Typical Team Structure (Small GCC)

For a 30-50 person team, you typically need:

  • 1-2 HR/Admin staff
  • 1-2 Finance/Accounting staff
  • 1 Compliance/Company Secretary (can be outsourced)
  • 1-2 Office management staff

Or outsource most of this to professional service firms initially.

Alternatives to Consider

Before committing to entity setup:

Hire a “GCC-in-a-Box” Service Provider

Some firms specialize in setting up and managing GCCs for foreign companies:

  • They establish the entity
  • Provide office infrastructure
  • Handle all compliance and HR
  • You retain operational control but outsource admin burden
  • Costs more than pure EOR but less than full DIY setup

Examples: QX Global Group, WNS Global, Collabera, etc.

Hybrid Approach

  • Use EOR for most employees (10-30 people)
  • Set up entity for key leadership/management (5-10 people)
  • Gradually transition employees from EOR to own entity
  • Gives you control at leadership level while minimizing compliance burden for larger team

Key Considerations

  • 💰 High upfront investment - Budget $100K-$500K+ for first year
  • ⏱️ Time commitment - 3-4 months to start hiring, ongoing management
  • 🏢 Physical presence required - Need office space and resident director
  • 📋 Ongoing compliance burden - Substantial annual filings and requirements
  • 👥 Local team needed - HR, finance, legal/compliance personnel
  • ⚖️ Regulatory complexity - Indian corporate law is comprehensive
  • 📊 Scale matters - Only cost-effective at 30-50+ employees
  • 🎯 Long-term commitment - Not easy to wind down once established

For most companies on Elphe, we recommend this progression:

Phase 1: Start Small (1-10 people)

  • Engage talent as independent contractors
  • Low commitment, fast to start
  • Validate the relationship and market

Phase 2: Build Stability (10-30 people)

  • Transition to EOR for permanent employment
  • Offer real jobs, retain top talent
  • Professional HR infrastructure without entity overhead

Phase 3: Scale with Control (30-50+ people)

  • Establish your own entity in India
  • Full control, optimized costs at scale
  • Build your own GCC with dedicated India operations

Each phase builds on the previous one. Don’t skip ahead—prove viability before making bigger commitments.

Final Thoughts

Setting up a legal entity in India is a significant undertaking that makes sense only when you’re ready to commit substantial resources and build a long-term presence. For most companies:

  • Contractors work well for starting (1-10 people)
  • EOR is ideal for growing (10-30 people)
  • Own entity makes sense for scaling (30-50+ people)

If you’re considering entity setup:

  • Work with experienced Indian corporate lawyers and CAs
  • Budget generously for setup and ongoing costs
  • Plan for 3-6 month lead time before full operations
  • Understand the ongoing compliance commitment
  • Consider hybrid approaches or GCC-in-a-Box services

Most companies on Elphe will thrive with contractor or EOR models. Entity setup is for those making India a strategic, long-term pillar of their global operations.

Need more information? Consult with corporate law firms specializing in foreign entity setup in India. They can provide detailed guidance based on your specific situation, industry, and business model.