Foreign Subsidiary Company in India
Formation of a Foreign
Subsidiary Company in India
India
today is one of the most paced economies in the world with bountiful of
business opportunities terming it as one of the preferred investment
destinations for Foreign nationals and companies. While there are various ways of investing
into India forming a foreign subsidiary is a preferred option given its
easiness.
In
this article, we shall briefly explain what a foreign subsidiary company in
India is, how it is formed and what the post formation requirements are.
What is a foreign
subsidiary company?
A
subsidiary company with its voting equity shares (i.e. greater than 50%) held
and controlled by a foreign registered company, may also be termed as the
parent company or the holding company.
The subsidiary so formed in India will be subject to the regulations of
Indian Company laws as prevalent.
How to form a
Foreign Subsidiary in India?
A.
Choice of Company
type:
As per the Indian Foreign
Exchange Management act (FEMA), Foreign Direct Investment (FDI) isn’t permitted
in a one person company, partnership firm or a proprietorship. Investment in LLPs are however allowed but
that warrants a prior RBI nod. The
quickest and simplest way to set up your foreign company business in India is
by way of formation of a private limited company.
B.
Basic requirements
for a private limited company:
Minimum Equity Capital:
There is no minimum capital required to form a private limited company in
India.
Number of Directors:
Minimum two directors are required, both should be individuals and at-least one
of whom should be a resident of India.
Number of
Shareholders: Company law requires that a Private Limited Company shall have a
minimum of two shareholders. There is no condition for residential status of
shareholders. Shareholders can be either
individuals or entities or a combination of both.
Broad steps for
Foreign company registration in India:
1. Obtaining Digital
Signature Certificate (DSC) and Director Identification Number (DIN): This is the first step where the proposed
directors of the Indian subsidiary need to obtain their respective DSC and
DIN. These would require KYC documents
such as Proof of identity, proof of address, Passport size photos. For any foreign citizen or non-resident,
these KYC docs will need to be notarized and apostilled by the competent
authority of the foreign country they reside in.
2. Name Approval
application: Choosing a unique and
acceptable name of the proposed Indian subsidiary is crucial to the
incorporation process. The same has to
be reflective of the company’s object and shouldn’t conflict with the names or
trademarks of any existing Indian company or as unapproved by the company law.
3. Incorporation
Application: The ultimate step in the
foreign company registration process is filing the incorporation application along
with the charter documents of the company such as the Memorandum and Articles
of Association of the Indian subsidiary, the Subscriber sheets to the charter
documents, prescribed declarations by directors, shareholders etc. These documents as applicable to foreign
nationals signing off will need to be notarized and apostilled in the foreign
country of their residence.
If the subscriber
is a foreign entity, then the Incorporation documents of such foreign entity
(i.e. parent or holding company) should be signed by the representative of the
foreign entity. An Authorization Letter/Board resolution duly stating the name
of the Authorized Person and the number of shares subscribed should be notarized
and apostilled, as the case may be in the home country of the subscriber
company.
Once
the Incorporation application is approved, the Registrar of Companies in India would
issue a Certificate with a Corporate Identification Number (CIN). The Permanent
Account Number (PAN) and Tax Deduction Account Number (TAN) of the Company, as
issued by the Income Tax department would also be allotted simultaneously on
the Certificate of incorporation.
Instant Compliances
mandatory post incorporation:
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
compliances under Companies Act 2013.
RBI
Compliances: A dual reporting process is
to be undertaken when a company is raising funds from a foreign investor:
1. On receipt of
funds: The Company has to provide details in an “Advance Reporting Form” to the
RBI within 30 days of receiving funds from foreign investor(s).
2. Issue of Shares: The
Company has to issue shares within 180 days from the date of receipt of funds.
3. Allotment of Shares:
The company has to report in specified form (FC-GPR) to the RBI, within 30 days
from the date of issue of shares along with:
a. A Certificate from
the Company Secretary certifying that the company has complied with the
procedure for issue of shares as laid down under the Foreign Direct Investment
(FDI) Scheme, and,
b. A certificate from
a Chartered Accountant indicating the manner of arriving at the price of the
shares issued to the foreign investors.
c. Finally, an Annual
return on Foreign Liabilities and Assets is required to be submitted reporting
all the investments received during the year.
GJM & Co. can help you with your Foreign
Company Registration in India and all other compliances for Accounting, Payroll, Reporting, Income Tax, GST, Audits, other local state registrations etc.
Schedule a Call today or write to
us on info@gjmco.in
Thanks & Best
regards,
Knowledge Base team
GJM
& Co.
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