Why Hire Talent in India?
India is an energetic country in Asia, known for its busy streets teeming with people, top-tier universities, natural wonders, diverse culture, and other-worldly landscapes. Beauty and energy aside, India is also the fastest developing country in the world with the third largest economy - and growing - thanks to its highly educated locals.
India is home to millions of graduates with degrees focused in Science, Technology, Engineering, and Math (STEM) fields. This, coupled with a well-established IT infrastructure, makes it the ideal place to expand into if you’re looking for qualified, highly educated technical talent.
India is also a favored destination for Fortune 500 companies looking to outsource workers due to the highly connected nature of the country and the work ethic and English-speaking abilities. For North American companies looking to expand internationally, India just might be your next stop beyond the corporate HQ thanks to all these reasons and more.
But how can you go about setting up a business in India? First, you will have to set up a local entity, which enables you to legally operate in a country outside your home base.
How to Set up a Business in India
To set up a business in India and begin hiring local employees, your business must have a local legal entity. There are a few ways you can go about doing so.
Depending on your unique business needs, including goals, timelines, and budgetary restraints, some may be more practical than others. Let’s look at the different options you have for penetrating the Indian market and taking your business to the next level internationally.
What Is a Legal Entity?
First things first. What is a foreign entity, and why does my business need one?
According to India’s Companies Act 2013, a Foreign Entity, also referred to as a Foreign Company, is any company or body incorporated outside of India which has a place of business in India, whether by itself or through an agent, physically or by electric medium; and conducts any business activity in India in any other manner.
Many businesses are attracted to India because of its exponential growth, which provides a ton of opportunities for international companies to take advantage of a growing economy.
To establish its business, any foreign entity has to choose between a variety of options.
Setting up a Foreign Entity in India: Your Options
In India, there are nine different types of business structures, and which one you choose will depend on your organization’s specific needs and resources.
Sole Proprietorship
A Sole Proprietorship is an enterprise that one person wholly controls. For example, it is common for entrepreneurs to launch a small business in their name and continue as sole proprietors. There is no formal registration required to start a business in India under Sole Proprietorship and while it is easy and cost-effective, this approach means the proprietor bears all responsibility for liabilities, making non-compliance a significant risk.
Partnership
A partnership is when two or more people come together to work and earn profits. In this business structure, the partners are responsible for all liabilities.When it comes to the registration of a partnership, it is not mandatory but suitable to have it properly registered.
Limited Liability Partnership
This is a business structure that is incorporated under the Limited Liability Partnership Act 2009. Unlike the Partnership business structure, an LLP is not burdened with unlimited liabilities caused by the business. An LLP's responsibility toward losses or debts is limited to investments made by them, and the LLP and its partners are considered separate legal entities. Put simply, if one of your partners, as part of the LLP does something non-compliant, you are not held accountable.
Private Limited Company
According to the Companies Act 2013, a Private Limited Company is “a company having a minimum paid-up share capital as may be prescribed, and which by its articles
- restricts the right to transfer its shares;
- except in case of One Person Company, limits the number of its members to two hundred
- prohibits any invitation to the public to subscribe for any securities of the company.’
Most Startups will select this option for the variety of perks it provides including:
- establishing the business as a separate legal entity
- Enabling the privilege of borrowing funds with more options for taking on debt (i.e. bank loans)
- Enables the company to be more easily sold or transferred without interruption to day-to-day business operations
- Enables the company to sue and be sued
- The company itself is the owner and therefore shareholders cannot claim ownership and lastly;
- Someone involved with the company can hold multiple responsibilities at once (i.e. can be a shareholder, employer and/or director all at the same time)
Public Limited Company
In contrast to a Private Limited Company, a Public Limited Company in India is often listed on the stock exchange and shares are traded openly. This type of foreign entity has more legal restrictions than a Private Limited Company but also comes with a range of benefits, including:
- Limited liability, whereby the liability of the shareholders is limited to their stake only. The business can be sued by not involving any shareholders.
- There is a minimum requirement of seven shareholders, and can exceed any limitless number of members as its share capital can occupy.
- The life span of the public limited company is not affected by the death of any member or shareholder.
- Public Limited Companies have more opportunities to raise capital through the stock market by issuing debentures and bonds from the public.
One-Person Company
A one-person company enables one individual to own and register this form of business in India fully and is said to cater specifically to economic growth and employment opportunities. A One Person Company reaps all the benefits under the Micro, Small and Medium Enterprises Development Act 2006 which has some financial incentives for example, if the company experiences any delay of payment they are entitled to receive interest thrice as much as the bank rate.
Section 8 Company
A section 8 Company is also known as a Non-profit Company and is meant to promote commerce, art, science, sports, education, research, social welfare, religion, charity, and/or the protection of the environment. This kind of company has access to many benefits, including tax exemptions under India’s Income Tax Act, greater credibility among other types of NGOs and status as an entity entirely separate from its members.
Joint-venture Company
A Joint-Venture Company is any arrangement involving two or more parties who cooperate in order to run a business or to achieve a commercial objective. This approach to setting up a foreign entity is an effective business strategy for companies looking to expand marketing efforts globally, earn international recognition and credibility, and acquire new clients because the company is already set up in partnership with contacts based in India. This provides ease of business set-up operations and additional financial resources.
Non-Government Organization (NGO)
Non-Governmental Organizations (NGO) are organizations formed to benefit the local society at large, particularly underprivileged populations (think: wildlife conservation, education promotion, eradicating poverty, providing food and shelter, and so on). NGOs function as charities with no self-interest involved. Therefore, benefit from things like tax exemptions, autonomous legal identity status, no capital requirement, and ease of transferring ownership or title.
Does all of this sound complicated, time-consuming, and expensive? It can be. This is where an Employer of Record (EOR) comes in.
What is an Employer of Record?
An Employer of Record acts as a broker for hiring talent outside of your home country. For example, if you opt to reach out to an EOR in India, most EOR service providers will already have local entities in place. This means that the EOR has the ability to act as a legal employer in India.
That means that the legal framework is already in place in the country, which gives you more time to grow your business, hire your local teams, and build a presence in this new market. Going through a global Employer of Record in India is a simple way to hire international workers without all the legal and administrative burdens.
EOR services encompass a wide range of perks when hiring international employees:
- Industry expertise in local labor laws
- Access to global markets and international talent
- Global payroll processing
- Payment of payroll taxes and compliance with tax laws
- Benefits administration and provision of health insurance
- Mitigation of compliance risks with local labor regulations
Hire Employees Anywhere
An Employer of Record is ideal for remote, global companies looking to expand into new markets because it gives your business access to top-tier, local talent and a simpler, more efficient way to penetrate new markets. The pandemic has forever changed the way we work, in fact, a recent study from Owl Labs found that 84% of workers would take a pay cut if it meant they could permanently work remotely.
Avoid Navigating Local Employment Laws
Unlike navigating local labor law and compliance depending on the rules and regulations associated with whichever foreign entity option you choose, an Employer of Record manages that for you. You get top-tier talent and global expansion with peace of mind that you comply with all local, and Indian tax, labor, and business laws. Thankfully, in India, you are in good company when it comes to an affinity for and comfortability with remote work. More than 95% of all Indian businesses plan to continue implementing a work-from-home model.
So, you’re sure expanding your business into India is the right next move for your company. We’ve broken down the benefits of opting for the EOR route.
Benefits of an Employer of Record
There are countless benefits to hiring an Employer of Record. EOR solutions include everything from visas and work permits, employment contracts, payroll, local compliance, termination, and many other HR-related services.
Using an EOR to hire talent in India will save you time, reduce costs, and mitigate risks.
The set-up and HR costs can also be quite high, so going through an EOR can save you money. You will also be paying lower salaries than in the US and Canada, so you’re bound to see some positive impact on your bottom line.
Most importantly, you’ll be mitigating the risks associated with non-compliance. Because EORs have extensive experience navigating complex local HR policies, you won’t have to worry about any issues arising from improper hiring practices.
How Do I Choose the Right EOR for Me?
Before selecting a vendor, here are five considerations:
Local Experience: Does the EOR have experience hiring in India? As discussed, one of the biggest advantages of hiring through an EOR is the assurance of meeting compliance. Often, this requires a lot of experience, so check the EOR’s track record in the country.
Service Scale: Do you need someone who offers a full suite of services? If you want happy employees that you can retain in the long run, then you may need to offer them benefits like insurance and other welfare. Some have systems in place for this, but others may not.
Data and Systems Security: Protecting intellectual property in a remote working environment is critical. Ensure your vendor of choice has a specific agreement outlining how they plan to keep your sensitive information safe and secure.
Collaboration: Ensure your vendor’s approach to communication and client collaboration is aligned with your organization’s approach. Do you need a reliable point of contact person? Perhaps all you need is access to a Slack channel to quickly reach your vendor. Whatever your communication style, ensure your vendor can meet your needs.
Borderless: The Employer of Record Your Company Needs
Need an EOR? Look no further than Borderless. We can help you establish a business entity in India – giving you access to a massive talent pool and potential clients and customers without all the headaches of traditional global expansion.
Book a demo today and see how we can help you quickly and easily expand into new markets and grow your business across the globe.
Disclaimer
Borderless does not provide legal services or legal advice to anyone. This includes customers, contractors, employees, partners, and the general public. We are not lawyers or paralegals. Please read our full disclaimer here.
