An Updated Guide to Establishing a Subsidiary in India by fred m. greguras, s.r. gopalan and steven s. levine

Businesses in the U.S. continue to move a portion of their development, support and other operations offshore to India, primarily for cost-saving reasons. Venture capital investors may require such outsourcing in order to reduce a company’s burn rate. While a U.S. company may initially contract for services with a third party in India, many companies establish their operations in India through incorporation of a subsidiary, a private limited company under the India Companies Act of 1956, as amended (the “Companies Act”). This memorandum summarizes certain of the legal and administrative issues that a U.S. company (the “U.S. company”) should consider in establishing an Indian subsidiary. Where to Locate the Subsidiary A key factor is the availability of a reliable employee pool with required skill sets for the services. Many U.S. software companies have established a subsidiary in Bangalore in the State of Karnataka because of its skilled work force, communications infrastructure and business friendly environment. On the other hand, Hyderabad is the center of life sciences activity in India. U.S. companies are increasingly considering establishing operations in locations other than Bangalore, such as in the cities of Pune and Chennai, that have lower costs, less competition for employees and a less mobile workforce. Employee benefits and other indirect and direct expenses are likely to be higher in Bangalore than other places in India. Bangalore still has a pool of junior employees available but senior employees are at a premium. Another important factor is where the potential local managing director lives in India. As discussed below, a preexisting relationship with a potential managing director for the India subsidiary is an important practical