Launching Liaison Office in India And Approval From RBI
Expanding operations in India, for many businesses is a strategic choice, isn’t it? Hence, India is like a thriving market with enormous growth potential. For getting a firm foothold in India, opening a Liaison Office (LO) gives businesses a structured path to investigate and research the target market.
It also helps the companies to make connections, and communicate better between Indian subsidiaries and their parent organizations. Hence, one needs thorough research and in-depth exploration of the aspects of establishing a liaison office in India in this article.
Liaison Office and its Understanding:
The parent company’s representative office outside of India is represented by a liaison office. Therefore, facilitating contact between the parent organization and Indian enterprises is the main objective.
A liaison office, in contrast to other business entities such as subsidiaries or branches, is not permitted to engage in commercial activities or make revenue in India.
The Liaison Office in India does not perform the functionalities of a branch office. Hence, they are established to serve as a conduit for communication. A three-year window is initially allowed for its establishment.
Its operations are restricted to market research first, and communication facilitation later. Also, commercial and business interests are promoted for the parent company.
Establishment of a Liaison Office:
It is significant to do extensive research and analysis to ascertain the feasibility and advantages of setting up a LO in India before beginning the establishment procedure.
- Analysing the markets and its potential.
- Legal requirements and getting legal advice.
- Operational and Regulatory factors.
- Speaking with professional and knowledgeable persons about Indian company laws.
- Post-establishment consideration, etc.
Above are the basic essential steps to establish your Liaison office in India.
Regulatory Requirements for a LO
When opening a LO, adherence to Indian laws is very crucial as well as critical. The Ministry of Corporate Affairs (MCA) and the Reserve Bank of India (RBI) are the two major regulatory agencies engaged in this process. The phrases that explain the regulatory requirements are as follows:
Approval from RBI:
Apply to the RBI via the Authorised Dealer (AD Category-I) bank, submitting information about the intended business activities, parent firm, and other financial resources.
- The parent company’s track record, the Liaison Office’s necessity for the parent company’s operations, and compliance with foreign exchange restrictions are just a few of the factors the RBI considers when evaluating an application.
- The parent company must have considerate net worth in its track record, amounting to at least $50,000.
- The parent company must have a track record of profits in its three fiscal years in its home country.
Membership in the Corporate Affairs (MCA) Register
After receiving RBI permission, register the Liaison Office as a foreign company under the Companies Act, 2013 of the MCA. Send in the necessary papers such as:
- RBI approval letter,
- The certificate of formation for the parent business, and
- The appointment details of the liaison person in India.
Documentation Requirements
The paperwork required to establish Liaison Office are as under:
- A banker’s report from the applicant’s banker in the host country or the country of registration that shows how long the applicant has been a customer of that bank.
- The most recent and audited balance sheet must be submitted by the applying organization.
- Recent financial statements validated by a trained accounts practitioner or a Certified Public Accountant.
- The Indian embassy or the Notary Public must attest to the COI, AOA or, MOA.
- The application must furthermore submit an English translation of the Articles of Association (AOA), Memorandum of Association (MOA), and Certificate of Incorporation and Registration (COI).
Establishing Infrastructure of the Liaison Office
The infrastructure for the Liaison Office must be put up after obtaining regulatory permissions. This comprises the following requirements:
Workspace:
- Secure an appropriate office space while adhering to local zoning laws and restrictions. Pay attention to things like infrastructure needs, accessibility, and location.
- The applicant can establish its workspace through the Government route or the RBI route, totally depending completely on the applicant’s discretion.
RBI’s Permission:
Following the approval from the RBI, a Unique Identification Number (UIN) shall be received by the Liaison Office.
Acquiring PAN:
The Liaison Office must receive the Permanent Account Number (PAN) to open its office in India.
Staffing:
- Select a Liaison officer to serve as the envoy for the establishment in India. Additionally, as needed, recruit support staff to take care of administrative duties and simplify day-to-day business operations.
- The foreign entity may still submit the Letter of Comfort as per Annexure-B from their parent firm even if they are unable to meet the eligibility requirements.
Operational Specifications
Since the Liaison Office has been established, it is crucial to concentrate on operational details to guarantee that it is successful in accomplishing its goals:
Market Analysis and Research:
To conduct and comprehend consumer preferences, market trends, and the competitive environment, conduct in-depth market research. Determining prospective business dynamics for the parent company by analysing industry potential is essential.
Building strategic partnerships
Developing connections with important parties, such as prospective customers, vendors, governmental organizations, and trade groups. To increase the Liaison office’s reach and exposure, take part in industry events and engage in networking activities.
Reporting and Compliance
Strictly adhere to the regulatory compliance guidelines set forth by the RBI and other pertinent authorities, Send regular reports to the RBI on the operations, finances, and state of compliance of the Liaison Office.
Challenges in the Process of Establishment of LO
- It is important to stay up to date with the constantly changing regulatory landscape in India.
- Success depends on the ability of an organization to comprehend and adjust to the customs and business practices of the area.
- To prevent legal problems in India, it becomes mandatory to understand the limitations and scope of business operations.
Post Set up Considerations
Hiring a consultant is very important for the long-term sustainability of the Liaison Office. A consultant’s work does not stop with setup. The duties of the consultant extend to the compliance of regulatory provisions set by RBI and other operational aspects.