Indian Subsidiary of Foreign Company

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WHAT?

The Indian Economy has proven to be one of the most attractive investment arena for the Foreign countries. Amongst the various forms of entry routes available for the Foreign Nationals/Foreign Companies to enter into India, one of the most common type of entity is by way of incorporating a subsidiary for their multinational companies to establish a presence in India.

A foreign Company can enter in India by establishing a Wholly Owned Subsidiary under the provisions of the Companies Act, 2013 subject to the Reserve Bank of India Guidelines under Foreign Exchange Management Act (FEMA) Act, 1999.

A Wholly Owned Subsidiary company (WOS) is an entity of which 100 per cent shares are held by another company. When a foreign company makes 100 per cent FDI (Foreign Direct Investment) in India through an automatic route, the Indian company becomes the Wholly Owned Subsidiary Company of that Foreign Company. This is possible where 100 per cent FDI is permitted and no prior approval of Reserve Bank of India is required.

A WOS can be defined as an entity whose entire share capital is held by foreign corporate bodies. It is always preferred that a WOS be established as a private company under the provisions of the Companies Act, 2013.

FEATURES
  • Minimum Paid-Up Capital required is INR 100,000/-
  • Minimum Two Directors are required for forming a Private Limited. However, as per the provisions of the Companies Act, 2013, at least one director should be resident in India. That is to say that for establishing an Indian Company, one Indian Director is mandatory in the management of the Company
  • Minimum Two Shareholders are required
  • Section-185 of the Companies Act, 2013 will not be attracted. Hence, there is no restriction on giving Loan or Guarantees or Security by Holding Company to its Wholly Owned Subsidiary (WOS) Company, subject to certain conditions
  • Where 100% FDI is permitted, no prior approval of Reserve Bank of India (RBI) is needed
  • It is treated as domestic company under Income Tax Law and is eligible for all exemptions, deductions benefits as applicable to any other Indian Company
  • Maintenance of effective control over its subsidiaries
  • It minimizes the dissemination risk.
  • All the documents along with Memorandum of Association and Articles of Association of the proposed company and the KYCs of the foreign nationals which are signed outside India needs to be apostillised and notarised from the country of its origin in the manner as may be prescribed.
HOW?

An Indian Subsidiary of a Foreign Company is generally registered as a Private Limited Company. A Private Limited Company is registered under the provisions of the Companies Act, 2013 through the procedure prescribed under the Act and Rules and Regulations made there under.

  • Step1: Name Approval: - The proposed name of the Company is applied by the promoter by paying requisite fee online through RUN(Reserve Unique Name) Web Service. The applied name will be processed by the Central Registration Centre(CRC) and thereafter approval or rejection will communicated to the applicant.
    To avoid rejection the name and documents should be as per the guidelines provided under Companies (Incorporation) Rules, 2014.
    Once the name is approved the said name will be available for 20 days within which the incorporation process has to be completed.
    The name of the Private limited company must end with the words "Private Limited".
  • Step 2: Obtaining Digital Signatures: - Digital Signatures of the all the members and any one Directors (if members and directors are different) needs to be obtained for the incorporation of the Company. For obtaining the Digital Signatures following KYC details are required:
    1. Identity Proof, i.e., PAN Card (Self Attested)
    2. Address Proof, i.e., Aadhaar Card (Self Attested)
    3. Photographs
    4. Valid Email id
    5. Valid Phone Number
  • Step 3: Documents preparation: - Once the name gets approved by the department, the documents are prepared as per the guidelines given under the Act / Rules for the incorporation of the Company.
  • Step 4: Incorporation: - Incorporation of the Company is done through e-form namely Simplified Proforma for Incorporating Company electronically (SPICEe). Thus, after preparation of documents Form SPICe - INC-32 will be filed along with MOA and AOA with the Central Registration Centre(CRC) of Ministry of Corporate Affairs by paying the requisite Stamp duty charges.
  • Step 5: Certificate of Incorporation: - Once the entire process is completed and the concerned department is satisfied by the all the compliances, the Certificate of Incorporation will be issued along with the allotment of PAN (Permanent Account Number) and TAN (Tax Deduction Account Number) of the Company after which the proposed company will become a separate legal entity to transact the business in its own name.
Fema Compliance

Once the Company gets incorporated, Bank Account is opened to receive the Subscription Money. Once the Subscription Money is received from the Foreign Subscribers, the Bank will issue a Foreign Inward Remittance Certificate (FIRC) to receive the proceeds in Foreign Currency and convert the same in Indian Currency as per the RBI Guidelines.

As per the Guidelines of RBI under FEMA Act, 1999, Foreign Investment can be done in an Indian Company under two routes:
  • Automatic Route - Where principal business of the foreign entity falls under sectors where 100 per cent Foreign Direct Investment (FDI) is permissible under the automatic route.
  • Government Route - Where principal business of the foreign entity falls under the sectors where 100 per cent FDI is not permissible under the automatic route. Applications from entities falling under this category and those from Non - Government Organizations / Non - Profit Organizations / Government Bodies / Departments are considered by the Reserve Bank in consultation with the Ministry of Finance, Government of India.

Wherever case falls under Automatic Route, prior RBI approval is not required for investing in the Indian Company.

However, once the proceeds are received in the Indian Bank Account by the Indian subsidiary Company, reporting of the same shall be given to the Reserve Bank India within 30 days of receiving the Subscription Money by filling Form FC-GPR with RBI.