Setting up a company in India as a non-resident: what actually blocks it

Short answer: most sectors take 100% foreign ownership through the automatic route, with no prior approval. What actually delays an India entry is rarely the investment approval — it is the resident director requirement, and for investors connected to a land-bordering country, Press Note 3, which was amended in March 2026.

The investment route decides the timetable

Two routes exist, and which one applies decides whether entry takes weeks or months.

Automatic route. No prior approval from the government or the RBI. In most sectors — IT and software, most manufacturing, B2B e-commerce and much else — a foreign parent may hold 100% of an Indian company as a wholly owned subsidiary, with no Indian partner required.

Approval route. A minority of sectors, plus anything caught by Press Note 3. Prior government approval, on its own timetable.

Establishing which route the proposed activity falls into is the first task on any entry, before a name is reserved or a structure chosen. Sectoral caps and conditions apply in a smaller number of sectors and can change the shareholding you were planning.

Press Note 3, and what changed in March 2026

Press Note 3 of 2020 required prior government approval for any foreign investment from an entity of a country sharing a land border with India — China, Pakistan, Nepal, Bhutan, Bangladesh, Myanmar and Afghanistan — or where the beneficial owner of the investment sits in, or is a citizen of, one of them.

That beneficial-owner limb is the one that catches people. An investment routed through Singapore or Mauritius is not outside Press Note 3 merely because the immediate investor is elsewhere; the test looks through to who ultimately owns it.

In March 2026 the Union Cabinet approved an amendment. The position now:

This is a genuine liberalisation for minority and financial investors, and no change at all for anyone taking a controlling stake. If you are working from guidance written before March 2026 — which is most of what is online — it will tell you approval is required in every case.

The requirement that actually blocks incorporation

Section 149(3): every company must have at least one director who has stayed in India for at least 182 days during the financial year.

This applies to every company. A wholly owned subsidiary of a foreign parent is not exempt. Nor is a joint venture, nor a dormant company.

For a founder intending to run the entity from abroad, this is the real constraint, and it has to be solved before incorporation rather than discovered during it. The days need not be continuous — they are aggregated across the year — and for a company incorporated part-way through the year the requirement applies proportionately to the remainder, which is worth confirming for your specific incorporation date.

The penalty is a continuing one, so it does not wait:

• The company — ₹50,000, plus ₹500 for each day the default continues, up to ₹3,00,000
• Every officer in default, directors included — ₹50,000, plus ₹500 per day, up to ₹1,00,000

Company, LLP, or neither

The last three are not incorporations and each needs its own approval route. They suit a parent testing the market or executing a single project — not a business that intends to trade and grow here.

They also carry a different permanent establishment profile, which is a tax question rather than a company-law one and is better answered before the structure is chosen than after. For a group setting up a captive or in-house centre specifically, the tax architecture is covered in GCC and captive unit taxation and the exposure in permanent establishment risk for a foreign parent.

What happens immediately after incorporation

The gap between "the company exists" and "normal compliance has started" is where most first-year defaults live.

FC-GPR, within 30 days of allotting the shares, on the RBI's FIRMS portal. This is the filing that reports the issue of shares to a non-resident, and it is missed more often than any other because it belongs to neither the incorporation agent nor the accountant by default.

After that the entity carries a FEMA calendar of its own, running alongside its ROC obligations and independent of them — FC-GPR on allotment, the annual FLA return, and APR where there is outbound investment. Those are set out in the FEMA filings companies miss.

The ROC side has its own first-year deadlines, computed differently from later years — see first-year ROC deadlines, and thereafter the annual AOC-4 and MGT-7 cycle.

The order that works

1. Fix the activity, and establish which FDI route it falls into.
2. Check Press Note 3 against the beneficial owner, not just the immediate investor.
3. Solve the resident director — this is usually the long pole.
4. Choose the structure on the funding plan, with the PE position considered.
5. Incorporate.
6. File FC-GPR within 30 days of allotment, and diarise the FEMA calendar separately from the ROC one.

Steps two and three are the ones that move timetables. Doing them fourth is how an entry that was quoted at three weeks takes three months.

This is a working reference, not the statute. FDI policy, sectoral caps and Press Note 3 have all changed recently — confirm the current position for your sector and investor before committing to a structure.