How to Start a Franchise Business in India?

Company is a Separate Legal Entity

A company is recognised as a separate legal entity, distinct from its shareholders. Even if it is fully owned by a single person or a group, the company maintains its independent status. This distinction ensures the company can continue existing regardless of changes in ownership.

However, while a company has legal recognition, it is not considered a citizen and cannot claim fundamental rights granted to individuals.

Example

Suppose John and Mary start a bakery and register it as a private limited company (e.g., "Sweet Treats Pvt. Ltd."). The company can enter into contracts, own property, and sue or be sued in its own name. If the company faces a lawsuit, John and Mary’s personal assets are protected, and only the company’s assets are at risk

Corporate Taxation

As a separate legal entity, a company is taxed independently from its owners. Corporate tax rates vary based on the type of company, its turnover, and prevailing tax laws. This separation ensures that individual shareholders are not personally liable for the company's tax obligations, reinforcing financial security and stability.

Example

Tech Innovators Pvt. Ltd." earns ₹2 crores in a financial year. The company pays corporate tax at the applicable rate (e.g., 25% for companies with turnover up to ₹400 crore), separate from the personal income tax liabilities of its shareholders. The shareholders are not personally liable for the company’s tax dues.

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Limited Liability

Limited liability protects shareholders by restricting their financial responsibility to the amount they have invested in the company. This means that even if the company faces financial losses or legal claims, the personal assets of shareholders remain secure. This feature makes private limited companies an attractive option for entrepreneurs and investors.

Example

If "Green Energy Pvt. Ltd." takes a loan and fails to repay it, the shareholders are only liable up to the amount unpaid on their shares. Their personal assets, such as their homes or personal savings, cannot be used to settle the company’s debts.

Company has Transferability of Shares

Shares in a company can be transferred freely unless restricted by the company's articles of association. This feature enhances liquidity, allowing investors to buy or sell shares easily.

While shares of public companies are freely transferable, private companies may impose certain restrictions on share transfers to maintain control over ownership.

Example

A shareholder in "Family Foods Pvt. Ltd." wants to transfer shares to her son. She can do so, provided the company’s Articles of Association allow it and the required approvals are obtained. This enables her to pass on ownership without affecting the company’s existence.

Company is a Juristic Person

Under the Companies Act, a company is considered a juristic person, meaning it has legal rights and obligations similar to a natural person. However, an authorised individual must represent it in legal matters, usually a Board of Directors or a specifically empowered Director.

While a company can file lawsuits, it cannot take an oath or serve as a witness in court, as these actions require a natural person.

Example

"Urban Developers Pvt. Ltd." can purchase land, enter into contracts, and hire employees in its own name. It is treated as a legal person, distinct from its shareholders, and can enforce its rights in court through an authorized representative.

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Company has Perpetual Succession

A company's existence is independent of changes in ownership or shareholder status. Even if a majority shareholder (owning 99.99% of shares) passes away, the company continues to operate until it is formally wound up. This ensures stability and continuity in business operations.

Example

"Dabur India Ltd." was incorporated in 1884 and has continued to exist and operate despite changes in ownership, management, or the death of shareholders. The company’s existence is not affected by such changes and continues until it is formally dissolved

Common Seal (If Applicable)

A common seal acts as the official signature of the company, used to authenticate important documents like contracts and deeds. While the Companies Act of 2013 has made it optional for private companies, some organisations still choose to adopt it for added authenticity and formal recognition.

Example

"Metro Pvt. Ltd." adopts a common seal as its official signature. When signing a property purchase agreement, the document is stamped with the company’s common seal, signifying its authenticity and approval by the board of directors. While optional, some companies still use it for formal documents

Decree Against Company & Corporate Veil

A company is generally not liable for an employee's wrongful acts unless they occur within the scope of employment. For liability to arise, the wrongful act must be directly linked to business operations rather than simply occurring during work hours.

The "corporate veil" protects shareholders from personal liability, but courts can lift this veil in cases of fraud or misconduct.

Example

An employee of "RapidMove Logistics Pvt. Ltd." causes damage to a client’s goods while making a delivery as part of his job. The client sues the company, not the employee personally. However, if the directors used the company to commit fraud, the court could hold them personally liable by lifting the corporate veil.

Company can Own Property

A company, as a separate legal entity, can own property in its name, and its assets are distinct from those of its members. Members do not have direct ownership over company assets but may have a right to claim remaining assets after the company is wound up.

Example

"TechHive Innovations Pvt. Ltd." purchases office equipment and furniture. These assets are owned by the company itself, not by any individual shareholder or director. If a shareholder leaves, the equipment still belongs to the company.

Company can be Trustee

A company can act as a trustee if its Memorandum of Association (MoA) permits it. The objects clause in the MoA defines the company's ability to function as a trustee. Companies often act as trustees in managing trusts, employee benefit funds, or asset management services, ensuring structured administration of assets.

Example

"SecureTrust Pvt. Ltd." is appointed as the trustee to manage a scholarship fund for underprivileged students. The company manages the fund’s assets and disburses scholarships according to the trust’s rules.

Capacity to Sue and Be Sued

As a separate legal entity, a company has the right to initiate legal proceedings and can also be sued in its own name. This ensures accountability and allows the company to protect its rights, enforce contracts, and address disputes independently of its owners or directors.

Example

"PureWater Solutions Pvt. Ltd." discovers that a supplier has delivered defective water filters. The company files a lawsuit against the supplier in its own name. Similarly, if the company fails to pay its rent, the landlord can sue the company directly.

Importance of Understanding Company Features

Understanding these features is crucial for ensuring legal compliance and making informed business decisions. It helps entrepreneurs, investors, and stakeholders navigate corporate operations effectively while minimising risks. Recognising the legal and financial implications of these features enables better decision-making in establishing and managing a company.

Frequently Asked Questions

Why Start a Business in India as a Foreigner?

India offers a compelling value proposition for global business owners:

• Fast-growing economy: India is among the top emerging markets with consistent GDP growth.
  
  
• Large consumer base: With over 1.4 billion people and a rising middle class, the domestic market is vast and varied.
  
  
• Startup-friendly policies: Programs like Startup India, Make in India, and Digital India support new ventures with tax benefits, funding access, and ease of registration.
  
  
• Improved ease of doing business: Recent reforms have simplified company incorporation, tax filing, and compliance.
  
  
• Strategic location: India’s proximity to other Asian markets makes it a strong base for regional operations.
  
  
• Skilled talent: A large English-speaking, tech-savvy workforce makes it easier to scale.
  
  
• Cost-effective operations: Lower labour and operational costs compared to many developed markets.

Additionally, FDI relaxations across sectors like tech, manufacturing, and services have made India a preferred destination for companies like Amazon, IKEA, and Walmart.

Popular Business Structures for Foreigners in India

Foreign nationals looking to start a business in India can choose from a few key structures:

• Private Limited Company (Pvt Ltd): Most preferred structure; allows 100% FDI in most sectors.
• Limited Liability Partnership (LLP): Suitable for service businesses and professional firms; FDI permitted in select cases.
• Liaison Office: Ideal for companies wanting to explore or represent without full operations.
• Branch Office: Allows foreign companies to conduct full-scale business in India.
• Project Office: Meant for foreign companies executing specific projects.

Note: One Person Company (OPC) and sole proprietorships are not allowed for foreign nationals or NRIs due to FDI restrictions.

Looking to register a business in India? Explore private limited company or LLP options with expert help today.”

Type of Company that NRIs and Foreign Nationals Can Register

While OPC is off the table, foreign nationals and NRIs can register the following:

• Private Limited Company
• Public Limited Company
• Limited Liability Partnership (LLP) – subject to FDI conditions

Under automatic FDI routes, many sectors do not require prior government approval for investment. However, some sectors are still under the approval route or have FDI caps.

The Private Limited Company remains the most flexible and founder-friendly choice, especially for technology, services, and product-based businesses.

Can a Foreigner Own 100% of an Indian Company?

Yes! Foreign nationals can own 100% of equity in Indian companies, provided the business operates in a sector under the automatic FDI route. This means:

• No need for government approval in most sectors.
• A resident Indian director is mandatory (must stay in India for at least 182 days in a financial year).
• Some sectors like defence, telecom, and insurance have FDI caps or require prior approvals.

Pre-requisites for Registration of a Private or Public Limited Company

Private Limited Company:

• Minimum 2 shareholders and 2 directors
• At least 1 Indian resident director
• Registered office address in India
• Digital Signature Certificate (DSC) for all directors
• Company name approval from the MCA

Public Limited Company:

• Minimum 7 shareholders and 3 directors
• Other requirements same as above

For foreign nationals, documents must be apostilled or notarised as per regulatory norms.

Documents Required for Foreign Directors & Shareholders

Foreign nationals need to submit the following documents:

• Passport (identity proof): notarised/apostilled
• Address Proof (bank statement, utility bill, not older than 2 months)
• Passport-size photograph
• Digital Signature Certificate (DSC) application form, duly signed
• Board resolution or power of attorney (in case of a foreign entity shareholder)

If applicable:

• PAN Card (mandatory for directors earning income in India)

 Process to Register a Company in India as a Foreigner

1. Obtain DSCs for all proposed directors
2. Apply for name approval on the MCA portal
3. Draft incorporation documents (MoA, AoA, declarations, etc.)
4. File incorporation application online via SPICe+ form
5. Receive Certificate of Incorporation from MCA
6. Apply for:
   
   • PAN & TAN
   • GST Registration (if applicable)
   • Bank account in the company’s name
     
     

Note: One resident Indian director is compulsory.

Taxation for Foreign-Owned Companies in India

Companies registered in India (even if foreign-owned) are treated as domestic companies for tax purposes:

• Corporate Tax: 25% (plus cess and surcharge) if turnover ≤ ₹400 crore
  
  
• GST: Mandatory if turnover exceeds ₹20 lakh (or if interstate services are provided)
  
  
• TDS: Deduction obligations apply when making payments to employees, contractors, or foreign entities
  
  
• Transfer Pricing Regulations: Apply for transactions with foreign affiliates or holding companies
  
  

India has Double Tax Avoidance Agreements (DTAAs) with many countries to reduce tax burden.

Company Types for Foreign Nationals

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Conclusion

While foreign nationals cannot register an OPC in India due to FDI restrictions, there are multiple flexible options available with the Private Limited Company being the most recommended. With the right legal support and compliance, India offers a rich, growth-oriented environment for foreign entrepreneurs to launch and scale their ventures.

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What is Nidhi Company?

A Nidhi Company is a type of Non-Banking Financial Company (NBFC) that operates exclusively for its members. It is registered under Section 406 of the Companies Act, 2013 and regulated by the Ministry of Corporate Affairs (MCA), rather than directly by the Reserve Bank of India (RBI).

The primary function of a Nidhi Company is to accept deposits from members and lend money back to its members. This “for members only” model distinguishes it from other NBFCs and ensures that operations remain community-centric.

Since Nidhi Companies deal only with their members and do not interact with the general public, they enjoy exemptions from core RBI regulations that typically apply to other NBFCs. However, they must still adhere to rules laid down by MCA and maintain transparency in their financial dealings.

The Purpose and Nature of Nidhi Companies

The central purpose of Nidhi Companies is to promote savings and thrift among their members and to facilitate easy, low-interest loans for those same members. They act as mutual benefit societies, pooling deposits and using those funds to lend back within the group.

Key characteristics include:

• Community-Focused Model: Members both contribute and borrow, keeping financial circulation within the group.
  
  
• Limited RBI Oversight: While they fall under the broad category of NBFCs, Nidhi Companies are largely governed by MCA rules.
  
  
• Exemption from Core NBFC Rules: They are not required to obtain RBI approval for incorporation or daily operations.

This makes them a niche but highly effective option for people looking to run community-driven financial institutions.

Benefits of Nidhi Company

• Encourages Savings: Members are motivated to build disciplined saving habits.
• Access to Affordable Credit: Members can borrow at lower interest rates compared to market lenders.
• Limited Regulatory Burden: Exemptions from most RBI regulations make operations simpler.
• Low Risk of Default: Since lending and borrowing are limited to members, risks are lower.
• Simple Incorporation: Registration under MCA is more straightforward than NBFC licensing.
• Legal Status: Recognised as a public company, lending credibility and trust.

Nidhi Company Registration Process

Registering a Nidhi Company in India involves several steps:

1. Obtain DSC & DIN – Digital Signature Certificate for proposed directors.
2. Name Approval – File an application with MCA to get the company name approved (must include “Nidhi Limited”).
3. Draft MOA & AOA – Prepare Memorandum of Association and Articles of Association with clear objectives.
4. Filing for Incorporation – Submit the incorporation application along with required documents through MCA’s SPICe+ form.
5. ROC Scrutiny – Registrar of Companies reviews and verifies the application.
6. Certificate of Incorporation – Once approved, the company is legally formed.
7. GSTIN & Bank Account – Apply for GST (if applicable), and open a current account for operations.

Related Read: How to apply for a Digital Signature Certificate in India

Compliances of the Nidhi Companies

After incorporation, a Nidhi Company must comply with specific filings and statutory requirements:

• NDH-1: Filing of return of statutory compliances within 90 days of the first financial year.
• NDH-2: Application to extend time for compliance (if required).
• NDH-3: Half-yearly return to ROC.
• MGT-7: Annual return filing with MCA.
• AOC-4: Filing of financial statements with MCA.
• Income Tax Compliances: Annual income tax return filing, tax audit (if applicable), TDS deductions, and advance tax payments.

Related Read: ROC Compliance Calendar 2025–2026: Important Filing Due Dates

Nidhi Company Incorporation Requirements

To incorporate a Nidhi Company, certain prerequisites must be met:

Before Registration:

• Minimum 7 members required.
• Minimum 3 directors.
• Minimum ₹5 lakh paid-up equity capital.
• The name must end with “Nidhi Limited”.

Post Registration (within 1 year):

• Minimum 200 members.
• Net Owned Funds (NOF) of at least ₹10 lakh.
• Deposits not to exceed 20 times NOF.
• Maintain at least 10% of deposits as unencumbered deposits (liquid assets).
  
  

Documents Required for Nidhi Company Registration

To register a Nidhi Company, you need the following documents:

• Identity Proof: PAN card of directors and members.
• Address Proof: Aadhaar card, passport, voter ID, or driving license.
• Photographs: Passport-sized photos of all directors and members.
• Office Proof: Rent agreement/ownership papers and utility bill of the registered office.
• Digital Signature Certificate (DSC) of directors.
• Charters: Draft MOA and AOA.
• Foreign Directors: Passport and notarised documents if applicable.

The entire process can be completed online via the MCA portal.

Restrictions on Nidhi Companies

To ensure that Nidhi Companies remain true to their purpose, certain restrictions apply:

• Cannot accept deposits from or lend to non-members.
• Cannot carry out chit funds, hire purchase, leasing finance, or insurance businesses.
• Cannot issue debentures, preference shares, or other securities.
• Cannot advertise for deposits to the general public.
• Cannot open current accounts in the name of members.
• Cannot conduct corporate transactions such as partnerships with other financial institutions.
• Must operate strictly within the framework of member-only deposit and lending.

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Frequently Asked Questions (FAQs)