SETTING UP A COMPANY IN INDIA

                     Setting up an IT company
                                           Opportunities in India:
National Association of Software & Service Companies, India:

Individual Indian citizen/company:
An individual Indian citizen can set up IT software and servicesoperations in India through the following:
As an individual/proprietor;
As a partnership/firm/trust; or
As a company registered under the Companies Act, 1956.
No prior permission of the Government of India is required to
set up IT/software units in India. Moreover, to encourage units
in this sector, the Government of India has announced many
schemes:
Domestic tariff area when the primary focus is to sell
in the domestic market in India: This unit can be set up
anywhere in India. All normal laws apply. No concession
is available on import duties. Exports are permitted. A special
Export Promotion Capital Goods (EPCG) scheme of
the Ministry of Commerce can be availed. This scheme
allows import of capital goods against export obligations
at a concessional duty rate of 5 per cent.
Special economic zones (SEZs): SEZs are areas where
export production can take place free from plethora of
rules and regulations governing imports and exports. Units
operating in these zones have full flexibility of operations
and can import duty-free capital goods and raw material.
The movement of goods to and fro between ports and
SEZ are unrestricted. The units in SEZ have to export the
entire production. The first two SEZs are being set up at
Positra in Gujarat and Nangunery in Tamil Nadu. At the
same time, Santacruz Electronic Export Promotion Zone,
Kandla Export Promotion Zone, Vizag Export Promotion
Zone and Cochin Export Promotion Zones have been
converted to SEZs.
100 per cent export oriented unit (EOU): This is similar
to the SEZ scheme. But in this scheme, there is no need to
be physically located at SEZ. All other incentives are the
same as those provided to the SEZ units.
Software technology park (STP): This is a very special
scheme under the Ministry of Information Technology. STPs
are located at Noida, Navi Mumbai, Pune, Gandhinagar,
Hyderabad, Bangalore, Chennai, Bhubaneshwar, Jaipur,
Mohali and Thiruvananthapuram. The scheme provides a
zero import duty on import of all capital goods, a special
10-year- income tax rebate, availability of infrastructure
facilities like high-speed data communication links, etc.


Overseas company:

A foreign company or individual planning to set up business
operations in India can do so as under the following:
As a foreign company through a liaison office/representative
office, project office or a branch office; and
As an Indian company through a joint venture or a wholly
owned subsidiary;
A foreign company is one that has been incorporated outside
India and conducts business in India. These companies are
required to comply with the provisions of Companies Act, 1956.
Liaison office/representative office
A liaison office is not allowed to undertake any business activity
in India and earn any income here. The role of such
offices is limited to collecting information about possible market
opportunities and providing information about the company
and its products to prospective Indian customers.
The Foreign Exchange Management Act (FEMA) regulates
the opening and operation of such offices. Also, approval of
the Reserve Bank of India (RBI) is required for the opening of
such offices. Permission for such offices is initially granted for
a period of three years and may be extended from time to
time. These offices have to ensure the following:
Expenses are met entirely through inward remittances of
foreign exchange from Head Office abroad.
These offices do not undertake any trading or commercial
activities. Activities should be limited to collecting and
transmitting information between overseas Head Office
and potential Indian customers.
Such offices should not charge any commission or receive
other income from Indian customers for provision of
liaison services.
Liaison/representative offices are required to furnish to the
RBI an annual compliance certificate from their auditors.
Project office
Foreign companies planning to execute specific projects in
India can set up temporary project or site offices in India with
the approval of the RBI. Such approval is generally accorded
to projects approved by designated authorities or projects
financed by an Indian bank/financial institution or a multilateral/
bilateral international financial institution. The tenure of the
Setting up IT software and services operations in India has certain rules and regulations. Brief guidelines
for individuals/companies interested in doing this have been listed below.
Opportunities in India
Setting up an IT company
Start-up Venture Creation
http://www.nasscom.org National Association of Software & Service Companies, Indiaoffice depends on the duration of the project, and normally
approval is not accorded for more than 3 years. Further, a
separate approval is required for each project proposed to be undertaken.

Branch office
Foreign companies may set up branch offices in India, with
the permission of the RBI, for the following purposes:
To represent the parent company/other foreign companies
in various matters in India, e.g. acting as buying/selling
agents in India.
To conduct research work in the area in which the parent
company is engaged, provided the results of the research
work are made available to Indian companies.
To undertake export and import trading activities.
To promote possible technical and financial collaborations
between Indian companies and parent/overseas group
companies.
Rendering professional or consultancy services or services
in IT and development of software in India.
Rendering technical support to products supplied by the
parent/overseas group companies.
A branch office is not permitted to carry out manufacturing
activities on its own. A branch office is required to file with the
RBI an annual compliance letter from their auditors. Remittance
of profits of the branch office is permissible by furnishing
requisite documents with an authorized dealer (i.e. a bank).
As an Indian company
A foreign company can commence operations in India by incorporating
a company under the provisions of Indian Companies
Act, 1956. Foreign equity in such Indian companies
can be up to 100 per cent, depending upon the business plan of the foreign investor, prevailing investment policies of the
Government, and on receipt of requisite approvals.
Joint venture with an Indian partner
Foreign companies can set up their operations in India by
forming strategic alliances with Indian partners. Setting up of
operations through joint venture may have the following advantages
for a foreign investor:
Already established distribution/marketing set up of the
Indian partner.
Available financial resources of the Indian partner.
Already established contacts of the Indian partner that help
smoothen the process of setting up operations.
Foreign investments are approved through two routes -
Automatic route
Approvals for foreign equity up to 26 per cent, 50 per cent,
51 per cent and 74 per cent are given on an automatic
basis, subject to fulfillment of prescribed parameters in
certain industries as specified by the Government. RBI
accords automatic approval to all such cases.
Government approval
Approval in all other cases where the proposed foreign
equity exceeds 26 per cent, 50 per cent, 51 per cent or 74
per cent in the specified industries, or if the industry is not
in the specified list, requires prior specific approval from
the Foreign Investment Promotion Board (FIPB).
Wholly owned subsidiary
The foreign investor has the option of setting up a wholly
owned subsidiary (WoS), wherein the foreign company owns
100 per cent share of the Indian company. As above, foreign
investments may be approved through the automatic route or
government approval. The automatic route is available for establishing
WoS in the IT sector.


SMEs and Ventures:

Korea has continuously been improving and expanding investment environments for SMEs and venture enterprises,
as well as developing infrastructures conducive to business starting-up.

Reinforcing efforts to foster venture enterprises
The government and the private sector plan to jointly create
an additional venture investment fund of about US$ 830 million
from home and abroad on the basis of public finance. As
of September 2000, there are 147 venture capital companies
whose assets total to US$ 1.8 billion, and 274 limited partnerships
whose assets amount to US$ 1.76 billion.
For efficient operation of the SME and venture enterprise starting
funds, the start-up fund assistance in the form of a loan
has been reduced. Instead, fund assistance in the form of
investments was and will continuously be expanded. SMBA
already lends public funds amounting to about US$ 385 million
to many venture capital companies which pursue the
profits by investing in SMEs and venture enterprises on the
basis of market systems. And the SMEs and venture enterprises
assistance loans will be provided to newly started businesses
only when the methods of loan provision are diversified.
To construct a responsible, comprehensive assistance system
for newly started venture enterprises with excellent technologies
and business ideas, Da-san Venture Co., Ltd. was
launched by inviting foreign and private capital, in addition to
government investment.
Da-san Venture Co., Ltd. will be managed independently by
responsible private-sector experts. This company will help
new enterprises develop excellent technologies, find new
business ideas and put them into a new business area.
This kind of fund, assisted by the government finances, will
supplement the private investments by investing in the hightech
areas that can barely attract private investment, including
bio-technology parts and materials. Such capital will also
serve as the seed money that will induce investments from
the private sectors.
Creation of an environment conducive to investment
in SMEs and venture enterprises
Foreign investment funds, pension funds and individual investors’
funds have been encouraged to increase their investments
in venture funds.
Expansion and promotion of specialized investment associations
organized by region and industry; and continuous encouragement
of private-sector investment associations by industry,
including culture, tourism, information and communication.

The government encourages domestic financial institutions
and foreign venture capital to expand their investments in
private venture funds. Apparently, thanks to the efforts of the
Korean government, a large quantity of foreign capital is being
invested in Korea. Vertex in Singapore and SSgA in the
United States each have invested US$ 10 million in Korea
Venture Fund. Also, world class leading companies such as
ADL(Arthur D. Little) and CITICORP and the like have invested
about US$ 270 million in the domestic venture capital companies
and limited-partnerships.
Recognizing that the private sector, the KOSDAQ market and
venture capital are expected to play a more central role for the
soft-landing and the sustained development of SMEs and
venture enterprises in Korea, the government will strengthen
the screening, supervision and public notification of the KOSDAQ
market so that it may successfully carry out the financing
role for SMEs and venture enterprises.
At the same time, the government keeps reinforcing the registration
procedure and follow-up measures related to venture
capitals and associations in order to help to lay a sound foundation
for investment in SMEs and venture enterprises. Also
the function of the over-the-counter market launched for the
non-registered, non-listed stocks of promising SMEs and venture
enterprises will be strengthened and improved continuously.
Angel investments will be further promoted: The conditions for
establishing a business angel were eased, while the supervision
of business angels was strengthened for better protection
of investors.
There are about 25 angel clubs, 52 business angels which
invested US$ 159 million in 310 SMEs and venture enterprises
as of July 2000. “Angel Investment Marts” by angel clubs
have been opened; cyber angel investment marts were established
on the Venture Net (http://venture.smba.go.kr).
A conducive environment to expanded investment in new
businesses by institutional investors will be created. Requirements
for the establishment and maintenance of venture capitals
and investment associations have been strengthened to
enhance their soundness.
Also, invested assets will be managed in a healthier manner
and the limited partnership system and venture capital companies
will be operated in a more efficient way through the
semi-yearly audit inspections, so it may further contribute to
investor protection.
Korea has continuously been improving and expanding investment environments for SMEs and venture enterprises,
as well as developing infrastructures conducive to business starting-up.
Small and Medium Business Administration, Korea
Korean assistance
SMEs and Ventures
Start-up Venture Creation
http://www.smba.go.kr



Business Coach
Continuous expansion of infrastructure
The number of business incubators centring around universities
and research institutes will be increased to 332 by next
year. There were 292 venture incubation and nurturing centres
nationwide in Korea at the end of 2000, in which about
3,295 businesses were preparing for start-ups. The SMBA
helps to establish networks among existing business incubators
and support the creation of special courses for training
business incubator managers.
Also about 200 coteries with the purpose of starting-up businesses,
comprised of bright and ambitious young people, are
active, and about 100 business start-up courses at universities
and research centres are nurturing over 7,000 people
who intend to participate in venture industry tomorrow. The
SMBA keeps supporting these kinds of programmes.
Professors and research fellows have been encouraged to
start more lab-based startups. There were 337 start-up SMEs
by professors and researchers at the end of July 2000.
“Districts for promoting venture enterprise development” will
be newly designated in special local areas to find out and
foster areas spontaneously clustered with venture firms. To
this end, detailed regulations were established and there will
be an established designation for the fields of design, dyeing,
information and communication. In those districts, a system
linking venture infrastructures will be constructed by reinforcing
the network consisting of business incubators, venture
capitals, universities and research institutes.
Promoting entrepreneurship
It is necessary to create an entrepreneurial climate in which
creative and adventurous entrepreneurs can enhance their
desire, motivation, technology and capabilities in various fields.
To this end, the government will provide them with educational
opportunities aimed at encouraging entrepreneurship.

Currently, HR professionals are enrolled in various training
courses, including the professional business inauguration
course and venture capitalist course. And high schools and
universities are encouraged to establish courses that focus
on the training of entrepreneurs of high-tech firms.
The government provides university business clubs with various
forms of assistance so that more young people with new
ideas can start their own business. The government also supports
road shows and new business competitions for venture
enterprises to create an atmosphere in which young entrepreneurs
can participate in the venture enterprises drive.
Universities and their labs are allowed to start their own businesses
in their schools, so that they may be able to serve as a
cradle for new businesses. Professors can concurrently work
as officers or employees of new start-up companies. These
are some of the government’s measures aimed at helping
professional research and technological personnel start their
own businesses.
Top management of SMEs can take part in educational courses
established by the government or public organizations.
Through such courses, they can develop their capabilities
that can meet the needs of an age characterized by knowledge,
information, internationalization and globalization. Also,
they can study ways to improve their competitiveness, without
government assistance.
Support in creating overseas markets
In an effort to secure a bridgehead for helping venture enterprises
to globalize themselves, the Korea Venture Center was
set up in Washington D.C. which will provide venture enterprises
with up-to-date Silicon Valley information, arrange partnerships
with foreign firms and help Korea’s venture enterprises
list their stocks on Nasdaq. Thus the Korea Venture
Center is expected to help domestic venture firms in various
and extensive ways.

SME Banking in Asia Pacific
Small to medium-sized enterprises (SMEs) account for more than 95 per cent of companies in key Asian-Pacific economies and yet
have traditionally been sidelined by financial institutions. How are SME markets in Asian economies composed and what are the
financial demands of companies this size? How can financial institutions serve the SME market more effectively? This report provides
the answers.
The scope of this report does the following:
Covers SME banking markets in four key economies: Hong Kong, Singapore, South Korea and Australia;
Includes data on the structure of and growth areas in SME markets, including data breakdowns by 13 industry sectors and four
company size bands;
Examines the growth of specific SME industry sectors over the period 1999-2003; and
Features data on aggregate lending to and aggregate deposits held by SMEs broken down by industry sector and company size.
The key reasons to read this report are as follows:
To improve your understanding of SMEs in any one of four key markets;
To learn more about the unique financial services needs of smaller companies; and
To identify the key areas of opportunity in the SME banking space in the Asia-Pacific region.
For more information, contact:
Datamonitor Asia-Pacific
Darling Park, Tower 2, Level 21, 201 Sussex Street
Sydney, NSW 2000, Australia
Tel: (+61-2) 9006 1526; Fax: (+61-2) 9006 1559
E-mail: apinfo@datamonitor.com