From China to India: A Case Study on the Equity Structure Design of a Cross-Border Payment Company

Written by: Yang Qi

In the past two years, “going to India” has transformed from an option for large manufacturing companies into a reality for an increasing number of technology, finance, and SaaS companies.

But many teams, when they mention India, only think of “large market, large population”. However, when it comes to actual implementation, the first issue that often gets stuck is: how to design the equity structure so that it is both compliant and facilitates financing and exit?

Below, I will break down a set of equity structure ideas for a “Chinese parent company + Singapore middle platform + Indian operating subsidiary” using a fictional but highly practical case, for the reference of outbound teams when building their structure.

1. First, understand: why is it necessary to design the equity structure before “going to India”?

Unlike many countries in Southeast Asia, India has a complex set of foreign exchange and FDI (Foreign Direct Investment) rules for foreign capital, which include the following core aspects:

FEMA + Non-debt Instruments Rules: Foreign investment in Indian company equity must comply with the overall FDI framework, reporting regulations, pricing rules, etc.

FDI access and shareholding limits by industry: Most service industries and IT services can have 100% foreign investment through the automatic route; however, banks, insurance, telecommunications, defense, and others have different shareholding ratios and approval requirements.

Press Note 3 (2020) on special approvals for investments from “land-bordering countries”: Investments from countries that have a land border with India (including China), or investments where the actual beneficiaries are residents of the aforementioned countries, will all be redirected to the government approval process, even if the industry was originally on the automatic route.

So, for Chinese companies, the core of going to India to establish an equity structure is not “how to evade scrutiny,” but rather:

Under the premise of having to face approvals and compliance, how to reasonably structure to balance business control, financing flexibility, tax efficiency, and regulatory acceptability.

II. Case Background: A Chinese cross-border payment SaaS company is going to India.

Assuming the main character is a Chinese company “Huaxin Payment Technology” (fictional):

Headquarters in China: Providing a one-stop payment solution for global e-commerce sellers through cross-border acquiring, risk control, and settlement SaaS systems.

It has already been established in multiple countries in Southeast Asia, and has set up a regional headquarters in Singapore, responsible for overseas funds, equity, and IP management;

Currently optimistic about the growth of cross-border e-commerce and local merchant digital payments in India, aiming to establish a local team in India, and possibly applying for a Payment Aggregator (PA) license in the future to help Indian merchants with payment acceptance.

In this regard, apart from the FDI regulations themselves, the Reserve Bank of India (RBI) has a separate set of authorization and net worth requirements for payment aggregators: new payment aggregators must have a net worth of at least 15 million rupees when applying for a license, and must increase it to 25 million rupees within three years of obtaining the license and maintain it thereafter.

Therefore, when designing the architecture, this company needs to consider:

FDI Access + Press Note 3 Approval Path;

Future demand for applying for RBI licenses (net assets, sources of funds, equity stability);

The convenience of future investments and exits for global shareholders (including USD VCs);

The control of the Chinese parent company over technology, branding, and business decisions.

3. Structural Objectives: What problems do we want to solve through the equity structure?

After thorough discussions with the founders, finance, and legal teams, the goals are usually divided into four parts:

Control: The Chinese founding team aims to maintain de facto control and strategic decision-making power over the Indian business.

Financing convenience: In the future, we hope to raise funds at the Singapore level and attract international funds, rather than directly splitting the shares of the Indian company among a bunch of VCs.

Compliance and explainability: When facing India's FDI approval, it is necessary to clearly explain the equity chain, beneficial owners, and sources of funds, rather than appearing to be “avoiding”.

Tax and Exit: Prepare a pathway for potential future IPOs or M&A exits in Singapore or overseas.

Based on this, we have designed a “three-layer structure” for Huaxin Payment.

4. Three-tier equity structure design: from the Chinese parent company to the Indian subsidiary

5. Top level: Chinese parent company + Singapore holding company

Step 1: Set up a global business holding platform (HoldCo-SG) in Singapore

The Chinese parent company (CN-Co) holds 70% of HoldCo-SG;

A dollar fund / strategic investor holds 20% of HoldCo-SG;

Reserve 10% of the ESOP pool for the global management team (including executives from Singapore and the future team in India).

There are three considerations in this step:

Consolidate global brands, IPs, and overseas operations on the Singapore platform for unified management of contracts, IP licensing, and external financing;

Singapore has a more mature equity incentive and investor protection mechanism, which is friendlier to VCs and institutional investors.

From a regulatory perspective, Singapore platforms serve as “direct investors” in India, with a clear equity structure and easily explainable sources of funds and beneficial owners.

It is important to note that:

Even if there is a Singapore platform at the top level, as long as the ultimate beneficiaries are Chinese individuals or Chinese companies, investing in India will still trigger Press Note 3 and will require government approval.

Therefore, the purpose of this structure is not to “circumvent censorship,” but to make the approval materials clearer and more predictable.

2. Intermediate Layer: HoldCo-SG invests in Indian operating company

Step 2: Establish an Indian operating company (India-Co)

Form: Private Limited Company (Pvt Ltd) is the most common investment vehicle in India and meets the FDI requirements for most Fintech/IT services.

Equity Structure (Phase One):

HoldCo-SG holds 90% of the shares;

India's local ESOP trust/employee stock ownership platform reserves 10%, gradually granting it to the core team.

Why weren't local Indian shareholders introduced from the beginning?

For cross-border payment SaaS businesses, the core assets are technology and global merchant resources, while local partners are more about channels, sales, and compliance services.

Introducing non-exitable local minority shareholders before the business model and compliance path are running smoothly will instead increase the costs of future structural adjustments.

In contrast, incentivizing local teams through employee stock ownership and partner options is more flexible and secure.

3. Reserve “Phase Two”: Establish a joint venture structure with strategic partners in India (if necessary)

As the business develops, Huaxin Payment may encounter scenarios like this:

A large Indian bank/payment giant hopes to invest or establish a joint venture to jointly promote payment solutions for specific industries.

India's regulations prefer the participation of local financial institutions in certain types of financial services.

At this point, a “second phase restructuring” can be carried out based on the existing structure:

HoldCo-SG will transfer a portion of shares (for example, 39%) of India-Co to its Indian strategic partner;

The restructured equity structure has changed to:

HoldCo-SG: 51%

India Strategic Partner: 39%

ESOP / Employee Stock Ownership: 10%

This not only maintains foreign control but also provides local partners with sufficient profit margins, making it easier to invest resources together.

5. In addition to the equity ratio, what is more important is the “control power in the agreement”.

Many overseas teams focus on the “equity percentage”, but in a country like India with a more mature legal system, the details of company law and shareholder agreements will directly affect control.

Under the above framework, it is common to design simultaneously:

Board structure

HoldCo-SG nominates a majority of directors (e.g. 3/5) to ensure voting rights on significant matters;

Indian strategic partners can nominate 1-2 directors to participate in daily governance;

Consider appointing independent directors to assist in addressing regulatory and investor governance requirements.

Reserved Matters List a series of significant matters in the shareholder agreement that require a supermajority resolution or mutual consent from both parties, such as:

Change business scope, apply for or relinquish financial licenses;

Large external guarantees, project cooperation;

New round of financing, equity dilution;

Transfer and licensing of key IP.

IP and brand arrangement

The technology and trademarks are usually held by HoldCo-SG and then licensed to India-Co for use;

New IP generated by Indian companies during local development can be agreed upon for automatic return to the Singapore platform, avoiding asset fragmentation.

Fund Path and Settlement Arrangement

Singapore platform invests in India: distinguish between equity investment and shareholder loans, noting the different rules under FEMA for capital and debt.

How Indian companies can 'flip' their earnings: Dividend distribution, service fees, IP licensing fees, etc., need to calculate withholding tax and permanent establishment risks with Indian tax advisors.

6. Key reminders on compliance aspects

In practice, the pitfalls that Chinese enterprises are most likely to encounter can be roughly categorized into the following types:

Ignore the penetration requirements of Press Note 3.

Thinking that “investing through a Singapore company means it's not a Chinese investment” is a typical misconception;

India will look at the beneficial owners (BO) during the approval process. If the ultimate actual controller is a Chinese citizen/company, it still falls under the scope of Press Note 3.

The planning of Indian licenses is disconnected from the planning of the company's net assets.

For example, if you want to do payment aggregation but turn the Indian company into a light asset with very little registered capital;

The RBI will directly block the review based on net asset requirements and capital stability, either by requiring additional capital or by restarting the process.

Enter India with the wrong carrier

For the sake of “tax savings”, some teams want to enter the market using structures like LLP.

However, the FDI regulations in many industries actually assume that you are using a company structure (Pvt Ltd), and LLPs can be inconvenient when introducing a new round of foreign investment or applying for certain licenses.

No space reserved for exit in advance.

If the future goal is to list in Singapore or be acquired by an international giant, key businesses, IP, and core contracts should be concentrated on the Singapore platform as much as possible.

The Indian subsidiary is more of an execution layer + local license holder, so the acquirer only needs to acquire the Singapore platform, making the structure clearer.

VII. A “Checklist” for the Chinese Overseas Team

Finally, let's summarize with a simplified Checklist: If you are preparing to go to India, at least ask yourself these few questions.

What is the specific industry we are in, and what are the FDI pathways and shareholding limits in India? Is it subject to automatic approval or government approval?

As a company with a Chinese background, have we incorporated the approval time and uncertainty of Press Note 3 into the overall timeline?

Is it necessary to establish a regional holding platform in Singapore or other neutral jurisdictions to centralize IP and global equity?

Will Indian companies need financial licenses / special industry permits in the future? What are the corresponding net assets, shareholder backgrounds, and governance requirements?

What is the ideal financing and exit path in the next 3–5 years? Does the current equity structure leave enough room for this path?

Conclusion

The opportunities in the Indian market are undeniable, but for Chinese companies, this is definitely not a market where they can just “easily register a company” to test the waters. The truly wise approach is to map out the equity structure, regulatory path, and exit strategy on a single sheet of paper before entering— even if you start with just a minimal viable structure, it is much safer than rushing to make changes on the fly.

If you are currently considering investing or setting up a subsidiary in India, you can use the case in this article as a blueprint. First, work with your team to outline your version of the “China Parent Company - Intermediate Holding - India Operations” three-tier structure, and then hand it over to a professional cross-border legal and tax team for localization review and implementation.

In this way, when you truly enter the Indian market, it will no longer be a “trial and error” process, but rather a well-prepared and rhythmic long-term layout.