Setting up an Indian Subsidiary for founders in India: EoR route

When it comes to expanding your business into India, founders often face the dilemma of how to quickly scale and hire talent without the complexities of setting up a full-fledged subsidiary. The Employer of Record (EoR) route presents a viable alternative, offering a faster and simpler way to hire employees and manage operations in India, without the need for immediate corporate setup.

In this blog, we’ll explore the EoR model, how it works, its benefits, and key considerations for founders looking to enter the Indian market swiftly.

What is the Employer of Record (EoR) Route?

An Employer of Record (EoR) is a third-party service provider that helps businesses hire employees in a foreign country—like India—without needing to set up a subsidiary or local entity. Essentially, the EoR acts as the legal employer for the employees, handling all compliance, payroll, and legal requirements, while the company (the client) manages the day-to-day work and business operations.

For example, when you hire talent through an EoR, the employees are technically on the EoR’s payroll, but for all practical purposes, they work for your company. The primary distinction lies in legal aspects, such as applying for loans or signing contracts, where the employees will be treated as employees of the EoR company rather than your business.

Key Features of the EoR Route:

• Third-party Employment: The EoR legally employs the individuals, while your company oversees their tasks.
• Faster Onboarding: You can onboard talent in India within minutes, bypassing the lengthy process of subsidiary setup.
• Simplified Exit: Exiting the market becomes much quicker and more cost-effective compared to setting up your own company in India.

Why Choose the EoR Route?

There are several reasons why founders looking to expand into India might choose the EoR route. Below are the primary advantages.

1. Quick Onboarding of Talent

One of the biggest challenges when expanding into a new market is hiring talent. Traditionally, incorporating a company and setting up operations in India can take anywhere from 6 to 12 months, just to onboard the first employee. The EoR model eliminates this delay. With an EoR, you can begin hiring and onboarding employees in just 5 minutes, streamlining your operations and allowing you to scale quickly.

This flexibility makes the EoR route an attractive option for companies that want to test the waters in India without a long-term commitment to setting up a full subsidiary.

2. Minimal Administrative Burden

The administrative complexity of running a business in a foreign country can be overwhelming. With an EoR, the heavy lifting of compliance, payroll, and legal requirements is taken care of by the third-party provider. This means you don’t have to navigate through India’s labor laws, tax regulations, or the complexities of setting up a business from scratch. The EoR ensures that your company remains compliant while you focus on growing your business.

3. Ease of Exiting India

While setting up a subsidiary in India can take years to wind down, exiting through the EoR route is a much quicker and simpler process. If you decide to leave the market, the exit timeline can be under 5 minutes, as there are no long-term operational ties to manage. In contrast, closing down a fully incorporated subsidiary in India typically takes anywhere from 3 to 4.5 years, involving the winding up of business operations, settling liabilities, and complying with Indian company laws.

4. Cost-Effective and Flexible

Setting up a subsidiary involves substantial investment in both time and money. There are legal costs, taxes, and operational expenses involved in establishing a local presence. With an EoR, these costs are significantly reduced. Additionally, because the EoR is responsible for employee management, there is no need for you to establish separate payroll, tax filing systems, or HR departments.

Key Considerations for Founders

While the EoR route offers numerous benefits, it’s important to keep a few considerations in mind.

• Legal Identity of Employees: The employees will be on the EoR’s payroll, so for legal purposes, they are technically employed by the EoR. This can affect their ability to secure personal loans or enter into contracts using your company’s name.
• Limited Control: Since the EoR handles the employment details, your control over the employees may be more limited than if they were employed directly by your subsidiary.
• Long-term Viability: The EoR model is ideal for quick expansion or testing the market, but if you plan on establishing a long-term business presence in India, you may eventually need to transition to a full subsidiary.

Conclusion

The EoR route offers a practical solution for founders looking to expand their business into India without the complexities of setting up a formal subsidiary. It allows you to hire talent quickly, reduce administrative burdens, and provides a flexible and cost-effective entry and exit strategy. However, it’s important to understand the limitations of this approach and whether it aligns with your long-term business goals.

If you're considering expanding into India and want to learn more about the EoR route or other options, be sure to check out our YouTube video. We dive deeper into the different strategies for setting up your Indian subsidiary and help you determine the best fit for your business.