Subsidiary Company Registration in India- 6 Factors to be considered

 In recent years, India has emerged as one of the best destinations for setting up businesses and making foreign direct investments. Many foreign companies are now moving a significant portion of their business operations and Research and Development Centers to India. With its Ease of Doing Business Initiative, Foreign Direct Investment Policies, Startup culture, and other government plans, it has become more viable and easier for foreign companies and foreign investors to set up or incorporate a company in India. Let’s elaborate on how India is becoming one of the most preferred countries in the world for doing business.

1. Why Choose India for Company Registration?

Some of the reasons why more and more foreign companies opt for subsidiary company registration in India and bringing foreign direct investments are as under:

• India provides an advantage owing to its democratic setup, vast consumer market base, and English-speaking professional manpower.
• The ease of doing business in India initiative by the Government has reduced the subsequent amount of rules and regulations for starting and operating a business in India and the time associated with it. Hence, providing the foreign investors multiple numbers of benefits.
• With its large population, India provides vast labor and human resource to foreign companies and that too at cheaper prices.
• Availability of resources in the country made it much easier for foreign companies to invest here.
• The subsidiary company provides an advantage in terms of lower tax rates as well as the fact that the Indian subsidiary can use the brand name of the parent company. Further, venture capitalists, as well as private equity investors, can make investments in Indian subsidiaries as shares of Indian subsidiary companies are freely transferrable.

All these factors contribute to the fact that more and more foreign companies are setting up business in India.

 There are multiple ways in which foreign companies can set up business in India and operate.

• In form of subsidiary company registration in India ( Private limited company registration or Public Limited Company registration).
• In the form of Liaison Office, Project Office or Branch Office.
• In the form of Joint Ventures ( Private limited company registration or Public Limited Company Registration).
• In the form of Limited Liability Partnership (LLP) registration in India.

All the aforesaid entities have their own advantages and disadvantages and the selection of a particular entity depends upon the long-term vision of the foreign company as well as its business operations in the home country.

2. Location for Subsidiary Company Registration in India 

Choosing the right location for the commencement of business operations in India is very important. Such decision depends upon multiple factors as mentioned below:

• For instance, in case the foreign company wants to set up a business in India in the field of Information Technology and Software Development, it may opt for Bangalore in Karnataka state. Many software companies have established its subsidiary company in this city because of its highly skilled human resource, business-friendly culture, and its telecommunication infrastructure.
• In case, the foreign company wants to venture into life science and health care activities in India, Hyderabad has emerged as a favorable place to open a subsidiary company for related business operations and companies.
• Further, many foreign companies have also considered establishing their company operations in cities like Pune in Maharashtra, Chennai in Tamil Nadu, Gurugram in Haryana state, Noida and Greater Noida in Uttar Pradesh and Ahmedabad in Gujarat, and many more due to its lower cost efficiency, less mobile labor force and less competition for employees.
• Another key factor in deciding the location of the subsidiary company is the location or city of residence, where the potential local managing director is living in India.

3. Amount of Capital with Which Indian Subsidiary shall be registered 

Although there is no minimum share capital prescribed under the law, however, it is advisable to register an Indian subsidiary with sufficient share capital.

The reasons for the same is that post-registration of Indian subsidiary, share subscription money deposited by the parent company in the Indian bank account will be considered as FDI and RBI compliance need to be done for intimating such receipt of FDI by filing of form ARF, FCGPR, etc with RBI.

In case, Indian subsidiary has less capital, it has to issue shares again to the parent company for bringing share subscription money which will again involve RBI compliance and involve cost of professionals. Private Limited Company Registration

Therefore, in order to avoid time and cost of compliance, it is advisable to have sufficient share capital in the Indian company. Indian subsidiary must estimate their initial working capital and capital investment need in India for 4 to 6 months and with that amount of share capital, the Indian subsidiary company shall be registered. Normally, USD 20,000 is ideal to start.

4. Number of Directors and Shareholders 

As per Indian regulations, minimum of 2 directors are required for subsidiary company registration in India and at least 1 director shall be an Indian citizen and Indian Resident. However, it is advisable to have at least 2 Resident Indian directors. This will facilitate the holding of board meetings, passing Board resolutions etc between Indian Directors, and no need to send documents for the signature of foreign directors again and again. 

Also, all documents which come from the foreign director or foreign company need to be apostilled and notarized in a foreign country which will increase time and cost. Also, in India at least 4 board meetings are required to be held every year. In case, there are only 2 directors, the foreign director has to visit India for attending board meeting again and again whereas if there are 2 Indian Directors, they can hold and attend a board meeting and each time foreign director don’t have to visit India. Therefore, there should be at least 2 Indian Resident Directors. There can be any no. of foreign Directors.

5. Prior Approval of RBI/FIFP in some cases 

Although foreign direct investment in India are allowed under automatic route for most of the sectors and no need to take any prior approval from RBI or FIFP, however, there are some sectors where FDI is permissible under the government approval route. For investment in those sectors, prior approval of RBI/FIFP would be required. Also, there are some prohibited sectors where investments are not permissible.

Also, in case FDI is coming to India from land-locked countries like China, Bangladesh, Nepal, Myanmar, Bhutan, Pakistan, Hong Kong, Afghanistan, prior approval of RBI/FIFP needs to be taken.

6. Hire a Professional Service Provider for Company formation in India 

Company formation in India is a comprehensive exercise and involves a lot of documentation and expertise of a professional chartered accountant or lawyer is required for smooth completion of the entire incorporation process as well as post incorporation process like:

1. Completing the required administrative requirements.
2. Completing the legal requirements of subsidiary company registration in India such as:
• Application for name availability and approval.
• Tax registration procedures.
• Labor registration process.
• Preparation of Memorandum of Associations (MOA) and Articles of Association (AOA).
3. RBI Compliance for reporting of FDI received from the parent company.
4. Obtaining approval from RBI/FIFP.
5. Payroll outsourcing services.
6. Human resource support and services.
7. Tax and Regulatory Filing.
8. Accounting/ Bookkeeping.
9. Audit/Assurance service.

We at EzyBiz India provide complete handholding to foreign companies desirous of registration of a subsidiary company in India. We assist them in all pre-incorporation as well as post-incorporation compliance as mentioned above.

 

Joint Venture Registration in India

When a foreign company wants to set up business in India in the form of incorporated entity, one of the options available for doing so is in the form of Joint Venture Registration in India. Other options available for foreign company registration in Indiaare:

 

•  Subsidiary company registration in India and 
•  Limited liability partnership.

 

Foreign companies can  establish a Joint Venture with Indian companies and make investment in same. Foreign companies can also contribute capital, infrastructure, knowledge, technology etc. It can be set up as an entirely new company in India with an Indian partner or it may involve investing in a company which is already existing in India. Joint venture registration can be in the form of Private limited company registration or public limited company registration. 

Permissible activities for Joint Ventures in India

 

1. Subject to FDI guidelines, Joint Ventures (JVs) can do all the business activities mentioned in itsMemorandum of Association. However, there is some prohibited list of business in FDI guidelines which cannot be done by JVs in India. 
2. Normally, JVs are a temporary partnership, established for a definite purpose and for a stipulated period, to fulfill a specific purpose such as accomplishing a task, activity or project. 
3.  FDI in JVs are allowed only in those sectors where 100% foreign investment is permitted under automatic route with no FDI-linked performance conditions. There are certain other conditions also, as specified by Government, which needs to be fulfilled. 
4.  There are some prohibited lists of business in FDI guidelines. It means JVs cannot be engaged in prohibited business activities. 

Therefore, this is an important aspect to be kept in mind before setting up of JVs in India.

 

Conditions required for setting up JVs

 

JVs in India can be formed in 2 ways.

 

•  First in form of new company where both Indian company and foreign company has fixed percentage shareholding or ownership right in new company. This is similar to opening wholly owned subsidiary in India.
• Second way of forming JVs in India is that foreign company can invest in shares of existing Indian company by way of allotment or transfer of shares already allotted.

 

What is the Legal Status of JVs in India?

 

•  Legal status of JVs is Indian Companies.
• A Joint Venture company can be set up as a separate legal entity, distinct from both, the foreign entity & Indian entity.

 

 

What approvals are required for setting up business in form of JVs

 

• For setting up JVsin India, prior approval of ROC/MCA is required. Also, approval of RBI, AD Banker and FIFP may be required in case of government approval route.
•  Further, if the activities of the JVs fall under Government approval route, then the approval from the Government has to be obtained. Government approval can be taken by filing online application with Foreign Investment Facilitation Portal (FIFP)

 

 

Tax Applicability in case of JVs

 

JVs are similar to Indian companies and therefore is liable to tax on global income at different tax rates like 15%, 22%, 25% and 30% depending upon case to case. Also, Subject to MAT @ 15% of book profits.

 

Repatriation of Profits of JVs

 

Profits of JVs can be freely repatriable. For repatriation of profits out of India, there are no restrictions. No approvals required. However, necessary taxes need to be paid in India, also subject to filing of form 15CA and 15CB and fulfillment of some other procedural compliance.

 

Winding up or closure of JVs

 

It is a complex procedure. Also, time consuming. Depend upon exit strategy adopted. Exit can be either by sale of shares or by liquidation. 

 

Thus JVs are very good option for foreign company registration in India where foreign partner and Indian partners collaborate for a common purpose and bring their own expertise, resource, technical knowledge, experience, technology and capital.

How to Incorporate Subsidiary of Foreign Company in India

Indian Subsidiary:
 
When another Indian company or foreign company holds 50% or more of the shares of an Indian company, an Indian company whose shares are so held becomes a subsidiary company.

Indian subsidiary company has a separate legal identity as compared to the parent entity.
 
Subsidiary company registration in India is one of the most popular forms of business set up in India.

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The following conditions must be fulfilled for subsidiary company registration in India.
 
A minimum of two directors is required. One of the directors in the company must be an Indian Citizen and an Indian resident having a permanent address in India, which is necessary for the incorporation of the company.

A minimum of two shareholders is required. The shareholders can be an individual or an entity, or a combination of both.

There is no minimum limit for authorized and paid-up capital. The foreign company must own more than 50% shares in an Indian subsidiary company and have significant control over it.

A person must be appointed as an authorized representative on behalf of the foreign company in India who will hold shares on behalf of the parent company.

If the parent company holds 99.99% shares, the Indian company becomes a wholly owned subsidiary of the parent company. In this case, at least one share must be held by the nominee shareholder.

A registered office for the place of business of the company is required. All the directors in the company must have a Director Identification Number (DIN).  

The procedure of Subsidiary Company Registration in India:
Following steps are involved in subsidiary company registration-
 
Apply for Digital Signature Certificate (DSC): The proposed subsidiary company in India is required to apply for the DSC of all the directors for online filing of documents with ROC/MCA. 

Name approval: Once the directors' DSC is prepared, the company must apply for a reservation of the proposed company's name. It has to choose a unique name for the subsidiary company and is to be filed through the RUN facility of the Ministry of Corporation (MCA) in due time. 

Drafting of MOA and AOA and applying for Director Identification Number (DIN): After name approval, charter documents must be drafted, i.e. MOA and AOA need to be drafted. Further, the DIN of all the appointed directors of the proposed subsidiary company is applied.

Application for receiving PAN and TAN: Simultaneously, PAN and TAN, ESI, PF of the company is also applied. Also, the name of the proposed banker of the company needs to be provided.

Finally, a certificate of incorporation would be granted, and a subsidiary company registered in India. Obtaining a Goods and Services Tax Identification Number (GSTIN): 

To business operations, a subsidiary company must have GST Registration in India.

Commencement of the business operations: Lastly, within 180 days of incorporation of a subsidiary company in India, it must apply for a certificate of commencement of business.  

Documents required for Subsidiary Company Registration in India:
 
The following documents are required to be submitted by the foreign company while registering the subsidiary company in India-

For the foreign director: These must be duly notarized or apostilled, or verified by the Indian embassy in their home country. Passport of the individual Identity proof of the country of their stay Address proof in the home country  

For the representative of the foreign company: These must be duly notarized and apostilled or verified by the Indian consulate in their home country (in case the representative is a foreign national and not an Indian resident)  Passport of the person Identity proof of the country of their stay Driving license  

For the Indian director 
AADHAAR Card.
PAN Card.

Any utility bill for address proof such as electricity bill, water bill, telephone bill etc.

Starting a Business in India- Some points to be considered

 

Looking to start your own Business? Great!

Following 7 points may be quite helpful in your future endeavor.

a)      Choosing a right type of entity for setting up business in India

There are many options available for company registration in India like proprietorship, partnership, private limited company, public limited company and limited liability partnership. Each entity has its own pros and cons and one must choose the right type of entity depending upon its nature of business and future plans and vision of the company.

Private limited company registration provides an advantage to investors to invest in the company by taking equity shares. Also, tax rate of private limited company are less as compared to LLPs and partnership firm. However, annual compliance cost of private limited company is quite high as compared to other forms of entity.

Another advantage of private limited company registration is that foreign parent company can subscribe to shares of Indian company and Indian company will become wholly owned subsidiary of parent company. Thus, it allows foreign companies to invest in India.

Compliance cost of LLPs and proprietorship firms are less as compared to private limited company. However, company has separate legal entity from its owners or founders.

In modern day and age, Private limited company registration is most popular and preferable form of entity registration in India.

b)     Business model of the company

This is the most crucial aspect of business set up in India. Proper research and planning shall be made to come out with a solid and robust business model of the company. Efforts should be made to look for latest trend and future predictions in the market. More and more use of technology shall be made in the business. There should be proper plan of monetization and revenue creation as well as backup plan in case things do not come out the way you desire it to be.

c)      Scalability

 

Business should be scalable in future otherwise sooner or later, it would be closed. Proper expansion plan should be in place even before launch of new business.

 

d)     Providing some solutions to existing problems

It has been seen that technology driven businesses which provides some solutions to existing problems becomes a hit very easily and have potential to become very big companies in short span of time. Therefore, endeavor shall be made to venture into new business which provides some solutions to problems or which provides improvement in existing functioning

 

e)      Talented Manpower

Companies grow because of its manpower. All endeavors shall be made to recruit and retain talented man power in the company.

 

f)       Various schemes of Government

Nowadays, Government has announced lot of schemes of funding both debt funding and private equity funding for deserving startups. Further, registration under startup scheme makes a startup eligible for various tax exemptions, reliefs from compliances and host of other benefits. Every startup shall avail those beneficial schemes introduced by the government of India.

 

 

g)      Keep the initial cost at minimum

 

Last but not the least, at the initial level; try to keep the cost of operations in the company at the minimum. Accordingly, it is advisable that initially, entire focus should be on cost cutting and avoiding expenses which can be incurred later. For example, there is no immediate requirement after company incorporation, to apply for trademark or ISO certification and other similar expenses. Once the company starts growing, one can incur such expenses.

 

All the aforesaid points are very important and should be kept into consideration while making a decision for business startup and day to day running of its business.