Friday, May 31, 2024
Friday, May 31, 2024

Incorporation of a Subsidiary of a Foreign Company in India

by Swati Raghuwanshi
Subsidiary of a Foreign Company in India

Establishing a subsidiary of a foreign company in India is a pragmatic move for businesses eyeing international growth. India offers an accommodating environment, lower production costs, access to larger markets, a skilled workforce, and a favorable business location that enables smooth cross-border operations. While the prospect may seem overwhelming, a systematic understanding of the process to incorporate subsidiary of a foreign company in India can transform it into a manageable undertaking. By adhering to the Indian authorities’ guidelines and making informed investments, companies can secure a lucrative foothold for sustained expansion. This discussion will guide you through the planning phase, legal obligations, and operational considerations involved in the creation of a subsidiary in India.

What is a Foreign Subsidiary Company?

Subsidiary company is one that is controlled by another company, known as the parent or holding company. “Control” refers to directly or indirectly owning more than 50% of the subsidiary’s voting rights. When such a subsidiary company is in foreign land then that is known as foreign subsidiary company. The parent company has the power to make decisions and govern the operations of the subsidiary. This control can also be established through the appointment of directors or exercising significant influence over the management policies. Subsidiary companies can be formed as Private Limited Company Registration or as Public Limited Company Registration. 

How Does Foreign Subsidiary Work? 

Foreign subsidiary companies are having their own management as well as operations. They have their own board of directors as well as other personnel who take key decisions related to the management and operation of the company. Such companies are also governed by the laws of that country where they are established. For example Indian subsidiary companies are regulated by the Companies Act 2013. They can be incorporated by doing public limited company registration or private limited company registration. 

They operate independently in terms of maintenance of financial records, board of directors and governing structure, but are accountable to the parent company.  A foreign subsidiary company can be fully owned or partially owned. A subsidiary is referred to as wholly-owned when the parent business owns all of its shares. Anything less than 100% ownership makes it a partially-owned subsidiary.

Prerequisites to Incorporate Subsidiary of a Foreign Company in India

Parent foreign companies (“applicant(s)”) can establish an Indian subsidiary as a Private Limited or Public Limited Company, subject to Indian laws. It is essential to grasp specific incorporation requirements to ensure a smooth and successful process. Some of the key prerequisites to incorporate subsidiary of a foreign company in India are mentioned below: 

  • It is not mandatory to have a minimum capital requirement for Indian subsidiary establishment, but the parent foreign company must inject capital to enhance operational efficiency, either through equity shares or debt. 
  • The designated address for all official communications and legal matters. Following incorporation, any changes to this address must be promptly updated with the relevant authorities.
  • Both private and public limited companies can appoint a maximum of 15 directors. However, a private limited company must have at least 2 directors while a public limited company needs to have 3 directors
  • A resident director, who has stayed in India for 120 days or more in the previous financial year, must be appointed by the parent foreign company.
  • A private limited company can have a minimum of 2 and maximum of 200 shareholders, while a public limited company must have a minimum of seven shareholders and can accommodate an unlimited number of shareholders.
  • The applicant must open a bank account for its subsidiary in an Indian authorized bank.
  • The parent foreign company must appoint statutory auditors for the subsidiary. 
  • The applicant shall follow the regulations  of FEMA to obtain necessary approvals for remittances and transactions that involve foreign exchange.
  • Acquire for the subsidiary a Tax Deduction and Collection Account Number (TAN) and Permanent Account Number (PAN). 

Checklist to Incorporate Subsidiary of a Foreign Company in India

In order to incorporate subsidiary of a foreign company in India, fulfill the following criteria given or discussed below: 

Collect Incorporation Documents

  • MoA & AoA
  • Board resolution approving subsidiary establishment
  • Certificate of Incorporation 
  • List of all directors & shareholders
  • Power of Attorney for authorized representative

Collect Directorship Details

  • Coloured passport-size photographs
  • Self-attested passport copies (for foreign director/shareholder)
  • Address proof 
  • Copy of Aadhar cards of directors
  • Copy of PAN card (if PAN isn’t available, a No PAN Declaration)
  • Business Visa documentation (if applicable)

Registered Office Address Proof Details 

  • The sale document of the registered office in India or the rental agreement
  • Utility bills (electricity, water, or gas) in the subsidiary’s name
  • No Objection Certificate from the premises owner, as per the prescribed format

Process to Incorporate Subsidiary of a Foreign Company in India

To establish a subsidiary of a foreign company in India, the process involves registering with the Registrar of Companies in India through online channels and submitting a digital application. Steps involve the following: 

Drafting of Board Resolution and Power of Attorney

After the necessary documentation, to establish and incorporate a subsidiary company in India, the parent foreign company must draft a Board Resolution and seek approval from the Board of Directors. This resolution must be presented at the next board meeting and serves as official proof of the company’s approval. Additionally, a Power of Attorney must be drafted to authorize a person (“authorized representative”) in India to file the incorporation application.

Legalization of Documents

To accept a Board Resolution, MoA, AoA, and other documents in India, legalization is required through Consulate attestation from the Indian Embassy in the foreign jurisdiction. Alternative attestation can be done from the Indian Apostille Office for Hague Convention signatory countries, or public notary services for Commonwealth Group nations. 

Apply for Name Approval

An authorized representative must submit an application utilizing Part A of the SPICe+ form for company incorporation or the RUN (Reserve Unique Name) form to the Registrar at the Central Registration Center in order to register a name. If the parent business’s registered trademarks are utilized in the name of the subsidiary firm, a NOC from the parent company and a legalized copy of the Board Resolution may be proposed in addition to two names.

Filing of Incorporation Application

After drafting and legalizing necessary documents, an applicant must file an online SPICe+ application for incorporation. If the subsidiary company’s name has been approved, the company can fill out PART B online, pay the required fee, and submit the application to the ROC. Entity can be a private limited company or a public limited company. 

Issuance of CIN

The ROC verifies and checks all submitted documents after the application is submitted, and after satisfaction, a Certificate of Incorporation is issued for the subsidiary company, which contains the company’s unique Corporate Identification Number (CIN). After obtaining a Certificate of Incorporation, the applicant must obtain registrations and licenses from various regulatory bodies, including obtaining a Permanent Account Number (PAN), adhering to GST requirements and Employees’ Provident Fund (EPF). 

Conclusion 

To incorporate a subsidiary of a foreign company in India, requires strategic planning and execution, but it offers substantial benefits for foreign companies looking to expand their presence. By following a well-planned plan and methodical implementation, companies can capitalize on India’s significant growth and development opportunities. Here in the present blog or article we have discussed many aspects of incorporating a subsidiary of a foreign company in India, hope this will help you out. 

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