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NRI woes: Doing business in India

No doubt it is tough but if an NRI ventures in a planned manner, he can succeed.

india Updated: May 16, 2006 11:21 IST

"Doing business in India is a nightmare for NRIs," moaned Lakshmi Shah of Toronto who burnt his fingers in his venture.

No doubt it's tough but if an NRI ventures in a planned and unemotional manner, he can succeed.

Here's a basic checklist:

First, get a PIO or Person of Indian Origin card that puts you on a par with an Indian as far as business and tax matters are concerned.

Among other benefits, a PIO has visa-free entry for 15 years and allows you to engage in business and own property, like any Indian.

Second, get a PAN or Permanent Account Number card issued by the income-tax department.

Any person - NRI or Indian - making an investment of over Rs 50,000 is required to quote his/her PAN number.

This also applies to purchases of over Rs 50,000.

Since you plan to go into business in India, you will eventually file your income-tax returns annually.

So you need a PAN card that is also a very useful identification document because it has your photo on it and you can show it in many places where you wish to be identified as an Indian - and not overcharged as an NRI!

The third point is business partners. Obviously, it is impossible for you to go into business on your own unless you want to move to India.

If not, you need partners for your proposed venture. You will identify and select your partners on the basis of their track record, integrity and other personal attributes.

Be careful of the single and most common pitfall of going into business with your relatives and close friends on the basis of your family relations or friendship.

A great majority of NRI business ventures have come to grief because of this 'emotional' alliance.

When the business collapses, you have lost not only your money but also a precious relationship.

The fourth is business structure. A simple partnership is a viable takeoff for your venture although it has some pitfalls.

All it takes is a lawyer to draw up the agreement between you and your partner(s) and register on a legal, stamp paper of Rs 100 and it takes just a few days to complete this simple formality.

When your turnover exceeds four million rupees, you need the services of a qualified accountant to audit your accounts and file your tax returns.

Limited liability companies take a lot of time to get off the ground. You need a lawyer or an auditor to register the name of your company called a 'private limited company'.

This involves paying a small fee and suggesting at least three proposed names.

It takes about a week for the Registrar of Companies to inform you which of the three proposed names is available.

On deciding its name, the lawyer/accountant prepares its memorandum and articles of association and files them with the appropriate fees depending on value of the share capital.

The minimum expense for all this is at least Rs 15,000-20,000 and it can go higher with higher share capital.

It takes at least one month to carry out all these registration of company formalities.

These 'private limited companies' are regulated under a host of 'company laws' that cover most organisational and accounting matters from writing the minutes of every board meeting to filing of its annual returns to the working of company directors to the format of their balance sheets.

There are rules and regulations all the way during the operations of this company and if you want to close down this limited liability company, you must again go to the lawyer/accountant and it can take up to eight or ten years to obtain the permission of the High Court for winding up the company.

In addition to the court fees, there are lawyers' fees to be borne by the directors.

No wonder NRIs shy away from getting into business in India, especially in private limited liability companies.

Five, once you take all these steps, you are - at last! - ready to launch into business.

Of course, you have decided the area in which you are going to engage in business.

So your company should become a member of the different business organisations looking after this sector in addition to the local chamber of commerce.

Many NRIs have ventured into exports from India as they help in marketing through their contacts.

All export/impost business must be registered with the Director General of Foreign Trade.

The application form requires a bank account number and a letter from the bank plus various details of partners/directors. The registration takes about two to three weeks.

Thus a partnership is perhaps the best company structure to start business in India. For establishing a limited liability company, you have to go through the grind but it's not a nightmare.

(A media consultant to a UN Agency, Kul Bhushan previously worked abroad as a newspaper editor and has travelled to over 55 countries.)