Subsidiary of Foreign Company registration
A subsidiary company is one that is either wholly or partially owned by another company, and operates under the same brand as the holding company. However, it maintains its own separate identity for all legal and compliance purposes. The holding company’s primary role in its subsidiary’s operations is to provide majority funding support. The main objective of a foreign company opening an Indian subsidiary is to expand its business beyond its country of origin’s borders. If you’re interested in starting a subsidiary company in India, understanding its meaning, legal requirements, Compliance are based on many aspects of the company. One must understand what all compliance are supposed to be met according to the type of company that is incorporated, the industry of operations, annual turnover, number of employees. A foreign company is defined under section 2(42) of the Companies Act, 2013, such a company must follow regulations and rules established under multiple legislations and orders such as:
The Companies Act, 2013 – Income Tax Act, 1961
GST Act, 2017 – SEBI rules and regulations
FEMA (Foreign Exchange Management Act), 1999 – RBI compliances etc. and funding sources are essential for success.
Incorporating a subsidiary of a foreign company in India is a fully online and application-based process. As with any other company, an Indian subsidiary is regulated by relevant provisions of the Companies Act, 2013. If you are interested in starting a subsidiary company in India, this blog provides complete information on the meaning of a subsidiary company, minimum requirements, a step wise process, and a list of documentation required for the incorporation process.
Types of Subsidiaries in India
In India, there are two primary categories of subsidiaries:
1. Wholly-Owned Subsidiary- In a wholly-owned subsidiary, the parent company possesses 100% ownership of the subsidiary's shares. However, it's important to note that wholly-owned subsidiaries can only be established in sectors that permit 100% Foreign Direct Investment (FDI).
2. Subsidiary Company- In this category of subsidiary, the parent company owns 50% of the subsidiary's shares.
Before proceeding with the establishment of a subsidiary in India, obtaining approval from the Reserve Bank of India is a crucial prerequisite. This regulatory step ensures compliance with the country's foreign investment regulations and safeguards the interests of all stakeholders involved.
Benefits of a Foreign Subsidiary Company
1. No prior approval of RBI is required for incorporation, if the subsidiary company is related to the sectors like automobiles, agriculture, electronic equipment, etc.
2. Subsidiary companies can avail of several tax benefits like incentives, and exemptions prescribed by the government of India depending upon the sector they operate.
3. Foreign subsidiary companies generate a lot of job opportunities thereby increasing the economic growth and national income of the country.
Reasons why foreign businesses want to set up a subsidiary in India
Following are some of the main reasons why foreign companies want to establish a subsidiary in India:
1. Access to a major market- India is the world’s second-most populated country, with over 1.3 billion people. Establishing a subsidiary in India gives foreign companies access to a huge and developing market with a rapidly emerging middle class that drives demand for a broad range of products and services.
2. Lower production costs- India is famous for its low-cost labour, which can enable foreign companies to substantially lower their cost of production. Establishing a subsidiary in India can also help companies take advantage of tax incentives, subsidies, and other perks provided by the Indian government to encourage foreign direct investment.
3. Skilled workforce- India has a highly educated and skilled workforce, with a strong emphasis on education in science, technology, engineering, and mathematics (STEM). Establishing a subsidiary in India gives foreign companies access to this skilled workforce, which can be used to fuel growth and innovation.
4. Favourable business atmosphere- In recent years, India has made tremendous progress in improving its business atmosphere, with an emphasis on simplifying rules and eliminating bureaucratic bottlenecks. Establishing a subsidiary in India can offer foreign companies a more attractive business environment than in many other emerging markets.
5. Strategic location- India’s strategic location at Asia’s crossroads makes it an excellent location for companies seeking to expand their operations in the region. Establishing a subsidiary in India can give foreign companies a strategic location from which to enter other booming markets in Southeast Asia and beyond.
Advantages of Indian Subsidiary Company
There are several compelling advantages associated with registering a subsidiary company in India:
1. Entry into the Indian Market- India's competitive environment offers a plethora of investment opportunities that attract foreign entrepreneurs to establish their subsidiary companies in the country.
2. Foreign Direct Investment (FDI) in India- FDI involves investments by foreign companies in Indian private companies through share subscriptions or acquisitions. In 2020, the Indian government introduced a provision requiring prior approval for investments from countries sharing a border with India, making Indian subsidiary registration an attractive option for foreign investors.
3. Perpetual Succession- The concept of perpetual succession ensures that a company's existence remains intact regardless of events like changes in management, transfers of membership, or insolvency. The company continues to operate seamlessly, providing stability and continuity.
4. Limited Liability- Limited liability is a significant advantage that encourages individuals to opt for company formation over other business structures. This principle extends to Indian subsidiary companies, protecting the personal assets of shareholders and directors. The company bears responsibility for its debts to third parties, shielding the personal assets of its stakeholders.
5. Scope of Diversification- Establishing an Indian subsidiary company provides a strategic avenue for foreign businesses to expand their operations. This contributes to the growth and development of the Indian economy and introduces a wide range of goods and services, fostering healthy competition.
6. Separate Legal Identity- According to the Companies Act, a company is recognized as a distinct legal entity separate from its shareholders and directors. This legal status empowers the company to engage in agreements with other competent entities as an artificial legal person. It also grants the company the ability to initiate legal actions and respond to allegations before the judicial system in its own name, without direct involvement from its members or directors.
7. Property Ownership and Rental- A subsidiary company, being a legal entity, possesses the authority and right to purchase or rent properties in India for its business activities. To prevent potential conflicts among company members, it is advisable to acquire such properties in the name of the company itself, aligning with the principle of perpetual succession.
Requirements and Key Facts about Company Registration in India
The process of registering a company in India is governed by the Companies Act, 2013, which outlines various pre-incorporation and post-incorporation requirements. Here are the essential elements to consider when registering a company in India:
Company Name: Your new business requires a unique name that is distinct from existing businesses' names or trademarks
Shareholders: The parent company can hold 100% of the shares, or any combination of two foreign nationals can be shareholders. It is not mandatory to have an Indian resident as a shareholder.
Share Capital: India does not impose a minimum capital requirement for company registration.
Directors: A minimum of two directors is mandatory, with at least one director being an Indian resident. Nominee directorship services can be provided if required.
Registered Address: Every company in India must have a registered address that is officially recorded in government records. Virtual office address services are available to meet this requirement.
Annual General Meeting (AGM): According to the Companies Act, every Indian company must conduct at least one general meeting annually, in addition to two board meetings.
Company Secretary: It is mandatory to file three secretarial returns each year, which are handled by a company secretary. The Startup Trends can assist with this requirement. A statutory auditor must also be appointed.
Checklist for Establishing a Foreign Subsidiary Company
1. To incorporate a private company in India,
2. Two Directors
3. Two members (Shareholders).
4. With these two directors, at least one should be an Indian citizen a person who stayed in India at least 182 days in the previous year).
5. It should have a minimum paid-up share capital of Rs 1 lakh or higher paid-up capital as determined by the Articles of Association (AOA).
6. AOA will restrict the right to transfer the shares.
7. Any private company registered under the Companies Act, 2013, will prohibit the promotion to subscribe for any shares or debentures of the company, by the public.
8. Similarly, it will prohibit the entity to accept deposits from persons other than the members, directors, and relatives.
9. Control also becomes a concern when a company is partly owned by another external organisation.
10. The parent company needs to guarantee the loan obtained by its subsidiaries. So it shows the liability of the parent company to pay off the debts.
11. As a subsidiary company, the decision-making process is a little bit time-consuming. Always, before making any decision, it should be consulted with the parent organisation.
12. The parent company can not have complete access to the subsidiary's cash flows, depending upon the management structure and the overall control of its exercises.
Procedure of Subsidiary Company Registration in India:
Step 1. Name Approval: The first step towards incorporation of foreign subsidiary in india is reserving the Company name. In case of a subsidiary company, it is permissible to use the same name as that of the parent company with the addition of the word “India” to it. The name is approved, provided the same is not identical to existing entities or considered undesirable by law.
Step 2. Procurement of DSC: In parallel, the Digital Signature Certificate (DSC) will be procured for the proposed directors of the Company. This DSC is required to file the Incorporation application digitally and will also be used for future compliance reporting.
Step 3. Incorporation Application: This is the final step to the subsidiary company registration in India. It requires filing of the Memorandum and Articles of Association of the Company along with various other documents duly executed by the proposed directors and shareholders to the Ministry of Corporate Affairs.
List of Incorporation documents to be executed:
1. Articles of Association
2. Memorandum of Association
3. Declaration by Directors in form DIR 2
4. Declaration of Directors/Shareholders and Authorized Representative in Form INC 9
5. PAN Undertaking from foreign company and directors
Generally, the incorporation documents are required to be self-attested by Indian Nationals. However, in case of Foreign Nationals, the process is as under:
1. In the documents are signed outside India, then the same have to be notarized by a Public notary of the residence country and consularized or apostilled by the competent authority, as the case may be.
2. If the documents are signed in India, then copy of Visa and stamped passport, proving his/her presence in India at the time of signing is required.
3. If the subscriber is a foreign entity, then the Incorporation documents should be signed by the representative of the foreign entity. An Authorization Letter duly stating the name of the Authorized Person and the number of shares subscribed should be notarized, consularized or apostilled, as the case may be in the home country of the subscriber company. Once the Incorporation application is approved, the Registrar would issue a Certificate with a Corporate Identification Number (CIN). The PAN and TAN of the Company would also be allotted simultaneously.
4. Treatment of Share Capital invested by the Holding Company and required compliances, Foreign Investments in Indian Companies are regulated by FEMA Guidelines and the Reserve Bank of India. Whenever the holding company invests funds in the share capital of the Indian subsidiary, it has to follow RBI guidelines along with compliance under Companies Act 2013.
Conclusion
The Startup Trends provides you with the service of foreign subsidiary company registration in India at an affordable cost. One does not have to spend a lot on registration. One can do their foreign subsidiary company’s registration online by the legal experts who have years of experience and are the best in their work.
The specialists of Online Legal India provide the best services to their customers and help them throughout the entire process. Foreign subsidiary company registration is as important as any other kind of company registration in India and it is kind of compulsory to register it as earlier as possible after its institution.
How The Startup Trends Can Help in Integrating Foreign Subsidiary Company?
As you can see, the rules and regulations that a foreign subsidy company should comply with are pretty long. Experts at The Startup Trends can easily help you to comply with the regulations of the Indian Companies Act and enjoy all the relevant benefits and protection. Reach out to our experts at The Startup Trends and they can easily help you out with the process.