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.

Company Formation in India During Covid 19

The economic impact of Covid-19 pandemic has been felt across the globe in terms of disruption of businesses, job loss, reduced production, reduced sales, and increase in credit terms and so on and so forth.

Further, the nature of doing work has also changed in terms of work from home has become the new norms, more and more virtual meetings happening quite frequently, cloud based systems and software have come into operation. However, despite the pandemic, entrepreneur spirit has not dampened across the globe. Although business sales and revenue has decreased but more and more new businesses were also set up.

India has also seen a surprising trend in terms of increase in entrepreneur spirits amongst the Indian youth across the country during these difficult times. More and more companies have been registered in India during time of pandemic. 

Different types of company formation in India has been witnessed during pandemic like

•  Private Limited Company Registration;
•  Public Limited Company Registration.
• Limited Liability Partnership Registration.
  

Company formation in India has increased by 25% during first five months of FY 2021-22. Also, there has been an increase in Limited Liability Partnership registration by approx. 45% during same period.

When COVID has started in India during March 2020, inspite of initial disruptions, total number of company formation in India during period April 2020 to August 2020 was 51,784 as reported by the Ministry of Corporate Affairs (MCA). It may be noted that this was peak period of COVID-19 in India and even the pandemic was unable to hamper or stop the spirit of company formation in India.

 

Further, during entire FY 2020-21, total 1.55 lac Indian company formation took place in India. 

If we look at monthly increase, in April 2021, total 12,554 companies incorporated in India which is 3.9 times of companies incorporated during April 2020 i.e 3209 companies.

Similarly, in May 2021 total 10,915 companies incorporated which is 2.3 times of number of companies incorporated during May 2020 i.e 4835 companies.

Also, in case of Limited Liability Partnerships, between April 2021 to August 2021, total 18,390 LLPs were registered which is approx. 44.5 percent increase from last year. During last year, total 12,724 LLPs were registered in India.

It may be noted that there has been a percentage increase in Private limited company registration in India in the field of finance and construction industry. During April 2020 to August 2020, total 90 finance companies and 726 construction based companies were registered where as in FY 2021, Total 354 finance companies and 1545 construction based companies were registered which is approx.. 293 percent and 112 percent increase respectively.

Thus, all the aforesaid trends in increase in company formation in India are indicative of the facts that by and large, the effect of pandemic has been overcome by Indian entrepreneurs. Further, FY 2021 has proven to be fastest growing year in terms of new company formation in India despite COVID-19 pandemic.

Also, this trend has raised high hopes for FY 2022 and expectation is that more and more new company registration will take place in India in coming years.

One can just hope and pray that no new variants of pandemic are effective in near future and this trend of growth in new businesses continues which will really help in contributing to national economy in long run.

Registration of Foreign Companies in India Step by Step Guide

Owing to its huge middle-class consumer base with good purchasing power, fastest-growing economy, democratic governmental setup, government's initiative of ease of doing business in India, and schemes like Make in India are attracting more and more foreign companies and people in business for setting up their businesses in India.

 

Any company can do business and invest in India through various routes and conduct business operations. However, first, they need to decide whether they will be engaged in commercial activity or a non-commercial activity in India since that will be deciding factor to make a further decision about the type of entity to be set up in India.

In this write-up, we will discuss various options available for foreign company registration in India and its procedure.

What is a foreign company in India?

As per the Companies Act, 2013, a foreign company is a company or body that has been incorporated outside India and whose place of business in this country is through an agent or by itself. Accordingly, foreign companies are not Indian companies.

What are the various options available for foreign company registration in India?

Various options available for foreign company registration in India are as follows:

1.    In case the foreign company wants to do only water testing in India. The best option is to register a liaison office in India. It is a representative office that cannot do any commercial activities and only acts as a communication channel between the foreign parent company and other Indian customers. RBI approves the liaison office. For the same, an application needs to be filed to RBI through AD Banker, and once approval is granted, ROC needs to be intimated about the registered office of the LO. RBI permits only limited activities in which LO can be engaged. Approval for liaison office registration is given only for three years, after which an application needs to be made for an extension. Wholly Owned subsidiary Company in India

2.    Another option available to a foreign company is establishing a branch office of the parent company in India. However, a branch office is always considered a permanent establishment of a parent company in India. Accordingly, all transactions between the Indian branch and the parent company shall be at arm's length. The branch office can also be engaged in only those activities which are permissible by RBI. They cannot apply to any manufacturing activities of their own. RBI approves Branch office registration. For the same, the application needs to be filed to RBI through AD Banker, and once approval is granted, ROC needs to be intimated about the registered office of the BO.

3.    Suppose a foreign company has obtained any project for execution in India and the duration for short terms, say six months to 2-3 years. In that case, the Foreign Company can establish a project office in India. RBI approves the project office. For the same, the application needs to be filed to RBI through AD Banker.

4.    When a foreign company intends to have full-scale business operations in India and with a long-term vision of business operations, it can opt for subsidiary company registration in India or LLP registration. A subsidiary company would be considered an Indian company and would have a separate legal entity compared to a foreign parent company. Here, a foreign parent company would hold almost all or majority shareholding in the Indian company. One of the advantages of a subsidiary company is that an Indian company can retain the parent company's brand name.

5.    ROC/MCA grants approval for both subsidiary companies as well as Limited Liability Partnership. The subsidiary company can be set up as a private limited company or a public limited company.

Following steps are involved in private limited company registration in India:

1.    Obtaining a Digital Signature Certificate (DSC).

2.    Apply for name availability through the Reserve Unique Name (RUN) form.

3.    E-Form SPICe INC 32

4.    Drafting and printing the Memorandum of Association (MOA) and Articles of Association (AOA). In the Indian subsidiary registration process, physical copies of both are required.

5.    Application for Permanent Account Number (PAN) and Tax Account Number (TAN).

6.    Provident Fund (PF) and Employee State Insurance (ESI) Registration.

7.    Once the procedure is completed, the Registrar of Companies (ROC) issues an Incorporation Certificate as proof of the company being registered.

What additional things need to be done once the foreign company is registered in India?

1.    If business activities fall under the government approval route, prior approval of FIFP needs to be taken before doing any business activities in India.

2.    Suppose the foreign company has been registered as a subsidiary company in India immediately upon incorporation. In that case, it needs to open a current account in Bank, and shareholders need to contribute share subscription money in a said bank account.

3.    After receipt of share subscription money, RBI compliance needs to be done to intimate them about the receipt of FDI by filing necessary forms.

4.    Share allotment needs to be done, and share certificates need to be issued.

5.    GST registration need to be applied for selling goods or providing services in India

6.    Import Export Code (IEC) needs to be applied in the import of goods or export of goods from India.

7.    Any other sector-specific registration needs to be taken, as applicable.