What is a Foreign Subsidiary Company?
A foreign subsidiary company is any company, where 50% or more of its equity shares are owned by a company that is incorporated in another foreign nation. The said foreign company in such a case is called the holding company or the parent company.
For a company to be a foreign subsidiary company in India, the company itself must be incorporated in India. It does not matter which country the parent company is incorporated in.
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Why Incorporate a Subsidiary in India?
Establishing a Wholly Owned Subsidiary (WOS) or a Joint Venture (JV) in India offers several strategic advantages for foreign companies:
- Strong Local Presence: A subsidiary provides a dedicated legal entity in India, fostering stronger relationships with local customers, suppliers, and partners.
- Access to Indian Market: Direct access to one of the world’s largest and fastest-growing economies.
- Operational Control: A WOS grants full operational and management control to the parent foreign company.
- Brand Building: Opportunity to build a localized brand identity and reputation within the Indian market.
- Ease of Doing Business: Continuous government efforts to improve the ease of doing business in India, simplifying processes over time.
- Repatriation of Profits: Clear regulations for repatriation of profits, dividends, and capital from India, subject to applicable laws and taxes.
Essential Compliances
The following are the more important compliances that have to be met by the foreign subsidiary company as per Section 380 and 381 of the Companies Act, 2013:
Form FC-1 under Section 380
The FC-1 form is important as the form has to be filed within thirty days of the incorporation of the subsidiary company in India. The form is not to be submitted alone, it must be accompanied by the required files, certifications etc. from other regulatory bodies in India such as the RBI.
Form FC-3 under Section 380
This form needs to be submitted to the respective Registrar of Companies (ROC) depending upon where the company is incorporated in India. The form must contain the details of the areas where the business is going to conduct operations as well as the financial records of the company.
Form FC-4 under Section 381
This form is concerned with the annual returns of the company. It has to be filed within sixty days from the end of the preceding financial year.
Financial statements
The company has to submit financial statements on its Indian business and operations. This must be submitted within six months of the end of the financial year. They must contain: – Statements on the transfer of funds – Statements of earnings repatriated – Statements on related party transactions such as statements on sales, transfer of property, purchases etc.
Audit of accounts
All accounts of the foreign subsidiary company must be audited by a Practising Chartered Accountant. These accounts should be properly arranged and made available by the company for the audit.
Authentication and translation of documents
All the documents that are submitted by the company to the ROC must be validated by a practising lawyer in India. These documents also need to be translated into English before its validation and submission.
Process of Incorporation of Foreign Subsidiary in India?
Documentation
The necessary documents required for incorporation of Foreign Company Subsidiary in India may vary depending on the type of company being formed. However, some of the commonly required documents include the Memorandum of Association and Articles of Association, proof of registered office address, director identification number (DIN) for all directors, digital signature certificates, and a certificate of incorporation from the foreign parent company.
Once all the required documents are in place, the application process for incorporating the subsidiary can begin. This is typically done online through the Ministry of Corporate Affairs (MCA) portal, and involves filling out the necessary forms and providing the required documents in their correct formats. It is important to note that the process of incorporating an Indian subsidiary can take some time, and may involve multiple rounds of documentation and review by the Registrar of Companies. Once the subsidiary is successfully incorporated, it will be issued a certificate of incorporation and can begin its operations in India.
Draft Board Resolution and Power of Attorney
Once you have gathered all the required documents, the next step is to draft a resolution seeking approval from the Board of Directors to establish and incorporate the subsidiary of foreign company in india. This resolution should be presented at the next board meeting and, once passed, it will serve as conclusive evidence that the company has officially approved the incorporation of its subsidiary. Additionally, the foreign company will need to draft a Power of Attorney authorizing a person in India to file the application for incorporation of its subsidiary. If you need assistance with drafting these documents, we have expertise in this area and can provide guidance as needed.
Legalise Board Resolution for Name approval
To ensure that the Board Resolution, which is a document originating and executed in a foreign country, is accepted in India, it needs to be legalized. This can be done by obtaining Consulate attestation from the Indian Embassy located in the relevant foreign country. In case the foreign country is a signatory to the Hague Convention, the attestation can also be obtained from the Indian Apostille Office. For countries belonging to the Commonwealth Group, attestation can be obtained from the office of the public notary. Legalization of the Board Resolution is a necessary step before applying for name reservation of the subsidiary company in India.
Select name and apply for approval
The subsidiary of foreign company in India has the option to use the same name as its parent company by simply adding the word “India” in between. For example, if the name of the foreign parent company is XYZ Pvt Ltd, the Indian subsidiary can be named as “XYZ India Pvt Ltd”. However, there are no restrictions on having a different name. In case the parent company has a trademark registered in its name, the subsidiary company can use the same provided the parent company issues a No Objection Certificate (NOC) for this purpose.
To reserve the chosen name, the authorized representative can file an application for approval with the Registrar at the Central Registration Center. This can be done using the RUN (Reserve Unique Name) form or Part A of the SPICe+ form for company incorporation. In each of these applications, two names can be proposed, along with a legalized copy of the Board Resolution and an NOC by the parent company if its registered trademarks are used in the name of the subsidiary company. The Registrar will approve the application if the proposed name is legally valid, and will reserve it for the subsidiary company.
Legalisation of Drafts & Documents for incorporation
Once the name of the subsidiary company has been approved and reserved, the next step is to draft and prepare the necessary documents for incorporation. These documents include the Memorandum of Association, Articles of Association, and Consent of Directors in DIR-2, among others. These documents must be carefully drafted and tailored to the requirements of the Indian Companies Act, 2013.
It is important to note that, like the Board Resolution, these documents will also have to be legalized in the exact same way before filing the application for name approval. This means that if the documents were originated and executed in a foreign country, they will need to be attested by the Indian Embassy located in that country or obtain an apostille if the country is part of the Hague Convention. It is recommended to seek the assistance of a professional firm experienced in company incorporation in India, like setindiabiz to ensure that all the necessary documents are properly prepared and legalized. This will help to avoid any delays or issues in the incorporation process.
File application for Incorporation
Once you have completed the process of drafting and legalizing all the necessary documents, you can proceed to file the online SPICe+ application for incorporation. In case the name of the subsidiary company has already been approved, you can directly fill out PART B of the SPICe+ form online. You do not need to download the application form. Once you have filled out all the required details, you can upload all the necessary documents in their digital formats and attach the DSC (Digital Signature Certificate) of the authorized director. Pay the prescribed government fee and submit the application online to the ROC.
Issuance of Certificate of Incorporation and CIN
Once the application is submitted, the Registrar of Companies will verify and scrutinize all the documents submitted. If everything is found to comply with the Companies Act, the Registrar will issue the Certificate of Incorporation for the subsidiary company. This certificate will contain the Corporate Identification Number (CIN) of the company, which is a unique identity number assigned to the company by the Registrar of Companies.
After the Certificate of Incorporation is received, the company must obtain the necessary registrations and licenses from various authorities, such as the Permanent Account Number (PAN), Goods and Services Tax (GST), Employees’ Provident Fund (EPF) and so on. The company must also open a bank account in the name of the subsidiary company and complete other formalities to start its operations in India.
Minimum Requirements for Incorporation of a Foreign Subsidiary in India
A foreign company can establish its Indian subsidiary either as a Private Limited Company or a Public Limited Company, both governed under Indian laws. Below are the key requirements:
- Number of Shareholders
- Private Limited Company: Minimum 2 shareholders; maximum 200.
- Public Limited Company: Minimum 7 shareholders; no maximum limit.
- Ownership Structure
- Wholly Owned Subsidiary: 100% shares held by the foreign parent.
- Partially Owned Subsidiary: More than 50% shares held by the parent.
- If the parent holds less than 50%, it’s not considered a subsidiary.
- Number of Directors
- Private Limited: Minimum 2 directors.
- Public Limited: Minimum 3 directors.
- Maximum: 15 directors for both types.
- Resident Director
At least one director must be a resident of India, i.e., must have stayed in India for at least 120 days in the previous financial year.
- Registered Office in India
A physical registered office address in India is mandatory. It cannot be a P.O. box or virtual office. All legal and official communications will be sent here.
- Capital Requirement
While there’s no prescribed minimum capital, a reasonable capital infusion is necessary to support business operations. The investment must comply with RBI guidelines for foreign investments.
Our Comprehensive Subsidiary Incorporation Services
As a trusted Financial Audit Firm, Account Assure brings a unique blend of expertise to your PLC incorporation:
- Entry Strategy Consultation: Advising on the most suitable entry route (WOS, JV, Liaison Office, Project Office) based on your business objectives and industry.
- Name Reservation: Assisting in selecting and reserving a unique company name with the Registrar of Companies (RoC).
- Director Identification Number (DIN) & Digital Signature Certificate (DSC): Facilitating the acquisition of mandatory DINs and DSCs for all proposed directors, including foreign nationals.
- Drafting of Memorandum of Association (MoA) & Articles of Association (AoA): Expertly drafting these critical constitutional documents, ensuring they align with your parent company’s objectives and comply with Indian law.
- Preparation of Ancillary Documents: Compiling all necessary affidavits, declarations, board resolutions from the foreign parent company, and consent letters.
- Filing with the Registrar of Companies (RoC): Meticulous preparation and online filing of all required forms and documents with the RoC.
- Obtaining Certificate of Incorporation: Ensuring the timely receipt of the Certificate of Incorporation, formally establishing your Indian subsidiary.
- Post-Incorporation Compliances:
- Application for Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN).
- Registration under the Goods and Services Tax (GST) regime.
- Opening of bank accounts.
- FEMA compliance: Filing of Form FC-GPR for reporting foreign investment.
- Guidance on initial statutory audits and regulatory filings.
- Advisory on transfer pricing regulations and international taxation.
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