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.

Setup Business in India Form of Wholly Owned Subsidiary Company

 

 A foreign company looking to setup business in India can do so in several ways like the incorporation of an Indian entity or continue to work in India as a foreign entity. If the intent is to incorporate an Indian entity, they have the following options for company incorporation in India.

1. Private Limited Company Registration.
2. Public Limited Company Registration.
3. Registration of Limited Liability Partnerships.
4. Registration of Joint Ventures in India.

Another option for foreign company registration in India is in form of a foreign entity. Here, they have the following options, namely:

1. Liaison office Registration in India.
2. Branch Office Registration in India.
3. Project office Registration in India.

Further, it may be noted that a foreign company can acquire 100% shares in an Indian Private Limited Company, in such a case, the Indian company will become a wholly-owned subsidiary of a foreign parent company. When instead of acquiring 100% shares in an Indian company, the foreign company acquires shares more than 50% in an Indian company, the Indian company will become a subsidiary of a foreign company.

Subsidiary company registration is the most preferable form of entity registration in India and is quite.

suitable for companies that want to do full-scale business activities in India to stay in India for a long period of time. Also, suitable for companies that want to use their global brands in India. 

Permissible activities for the Wholly Owned Subsidiary company in India 

1. The Wholly Owned Subsidiary company can do any business activities which are prescribed under its memorandum of association subject to FDI guidelines.
2. Indian Wholly owned subsidiary can be set up subject to FDI guidelines. Foreign companies can invest in the majority of business sectors in India under automatic routes. Only for investment in some sectors and for investment over the specified limit, prior approval of government is required which is called a government route.
3. There are some prohibited lists of business in FDI guidelines. It means subsidiary companies in India cannot be engaged in prohibited business activities.

Therefore, this is an important aspect to be kept in mind before the registration of a wholly-owned subsidiary in India. 

Conditions required for registration of a wholly-owned subsidiary company

1. Wholly Owned Subsidiary can be registered in India either as Public Limited Company or Private Limited Company.
2. For Wholly Owned Subsidiary as Private Limited Companies, minimum 2 Directors and minimum 2 shareholders are required out of which at least 1 Director shall be Indian Citizen and Indian Resident.
3. For Wholly Owned Subsidiary as Public Limited Companies, minimum 3 Directors and minimum 7 shareholders are required out of which at least 1 Director shall be Indian Citizen and Indian Resident.
4. Shareholders can be companies also (including the foreign company), however, Directors has to be individuals. Companies can hold shares in Indian WOS through authorized representatives.
5. 100% shares in an Indian subsidiary company can be held by a foreign parent company.
6. At least one of the Directors shall be an Indian Resident and Indian Citizen.
7. There should be a local office address in India.

Legal Status 

The legal status of the wholly-owned subsidiary is an Indian company. Therefore, it is independent of its parent entity. It has limited liability i.e liability is limited to the amount of capital invested in the company and has separate legal existence.

Approvals Required

1. For subsidiary company registration in India, prior approval of ROC/MCA is required. Also, approval of RBI, AD Banker, and FIFP may be required in case of a government approval route.
2. Further, if the activities of the Indian wholly-owned subsidiary fall under the Government approval route, then approval from the Government has to be obtained. Government approval can be taken by filing an online application with Foreign Investment Facilitation Portal (FIFP)
3. Once a subsidiary company is registered in India and share subscription money has been received in the Indian subsidiary’s bank account, RBI needs to be intimated about such receipt of FDI in India by login into the portal and filing prescribed forms online. Further, allotment of shares needs to be done, Share certificates need to be issued and ROC compliance needs to be done. Any excess money received in the Indian subsidiary bank account needs to be refunded within 2 months of such receipt. Failure to make aforesaid compliance will lead to a penalty from RBI.
4. Besides above, the wholly-owned subsidiary company needs to comply with all the laws, rules & regulations as applicable, including but not limited to Companies Act, 2013, Foreign Exchange Management Act, 1999, Shops and Establishment Act, Income Tax Act, etc., failing which may result in heavy interest and/or penal implications.

Accordingly, the cost of running and maintaining expenses of a wholly-owned subsidiary company is high and requires expert professional guidance all the time. 

Tax Applicability 

The wholly-owned subsidiary, being a company, 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 

For the repatriation of profits out of India, there are no restrictions. No specific approvals are required. The profits can be repatriated outside India subject to proper payment of taxes in India, filing of forms 15CA and 15CB, and completion of other procedural compliance. 

Exit out of India

Winding up procedure of wholly-owned subsidiary company is a complex procedure. Also, it is time-consuming. Further, it also depends upon the exit strategy adopted. Exit can be either by sale of shares or by liquidation. However, exit is possible only when all compliances under various statutes have been completed and there is no litigation pending before any authorities in India.

Thus, from above, it may be seen that wholly-owned subsidiary has many advantages due to which more and more foreign companies are opting for registration of the wholly-owned subsidiary company in India. It allows Indian subsidiary companies to use the brand name of the parent company. Further, it has less tax rates as compared to other entities in India like Limited Liability Partnerships. Although the compliance cost of a subsidiary company in India is slightly higher due to overall benefits, it is best suited for foreign companies.

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.