Wholly Owned Subsidiary of Foreign Company Incorporated In India

This article talks about Forms in which business can be conducted by a foreign company in India, Definition of Foreign Company, Modes of formation, Minimum requirements, Boards of directors, The Process to Obtain Digital Signature Certificate, Shareholding, Incorporation procedure, etc for subsidiaries of companies incorporated in India.

India is a desirable destination for investment form NRIs, Foreign Nationals, and Foreign Companies due to its booming economy and wealth of resources. India is among the fastest-growing economies in the world, slated for tremendous growth over the coming decades with plenty of business opportunities. Foreign investment into India is at an all-time high and is pegged to grow even higher with regulatory reforms and an investor-friendly climate. In this context, we look at the process and procedure for an NRI or Foreign National or Foreign Company to invest or start, manage and grow a business in India in the form of wholly owned subsidiary.

This article is intended for those companies or startups that have registered their companies outside India and want to operate in India as part of a foreign company. A company can be registered as private limited or public limited. A private limited company is a closely held company and enjoys the privileges given by the Companies Act, 2013. A public limited company is a company where the public is interested and it is required to comply with a lot of rules and regulations framed by the Companies Act, 2013. Generally, foreign Companies incorporate Private Limited Company in India.

Forms in which business can be conducted by a foreign company in India

A foreign company planning to set up business operations in India may:

  • Incorporate a company under the Companies Act, 2013, as a Joint Venture or a Wholly Owned Subsidiary.(Discussed Below)
  • Set up a Liaison Office / Representative Office or a Project Office or a Branch Office of the foreign company which can undertake activities permitted under the Foreign Exchange Management (Establishment in India of Branch Office or Other Place of Business) Regulations, 2000

Definition of Foreign Company

It could be defined as any company incorporated outside India is known as a foreign company. For example, A company that incorporated outside India (i.e. in a Foreign Country) is called Foreign Company. For example XYZ Inc. U.S.A.

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Taking the law point of view, it could be understood in some sections:

Section 2(42) of Companies Act, 2013: A foreign company means any company incorporated outside India which-

  • Has a place of business in India whether by itself or through an agent, physically or through electronic modes; and
  • Conduct and business activities in India in any manner.

Under Section 379, “where not less than 50% of the paid-up share capital, whether equity or partly preference, of a foreign company, is held by:

  • One or more citizen of India, or
  • By one or more companies or bodies corporate incorporated in India, or
  • By one or more citizen of India and one or more bodies corporate incorporated in India.

Definition of Wholly Owned Subsidiary Company

A Wholly Owned Subsidiary company is an entity of which 100 percent shares are held by another company. For example, if ABC Pvt. Ltd. owns 100 percent shares of XYZ Pvt. Ltd. Then XYZ Pvt. Ltd. becomes a wholly owned subsidiary company of ABC Pvt. Ltd.

Wholly owned subsidiary by foreign entities in India

When an entity registered or incorporated outside India (i.e. foreign country), makes 100% Foreign Direct Investment (FDI) in India [as per Indian FDI Policy few sectors are permitted for 100% FDI in India], the India company is said to be wholly owned subsidiary of that foreign entity.

Illustration: ABC Private Limited is 100% owned by XYZ Inc, registered in the USA. Here ABC Private Limited is wholly owned subsidiary of XYZ Inc.

Modes of formation

The wholly owned subsidiary can be formed either as a Private or Public Company, limited by shares or guarantee or an unlimited liability company. There are more exemptions available to a private limited company under the Indian Companies Act 1956, hence most of the companies prefer to form Wholly Owned Subsidiary Private Limited Company.

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Minimum requirements

There are following the minimum requirement in order to incorporate the wholly owned subsidiary company in India and i.e.

  1. Minimum two directors
  2. Minimum two shareholders
  3. Minimum paid-up capital of Rs1 lakh

Boards of directors[1]

Companies Act, 2013 permits NRIs, PIOs, Foreign Nationals, and Foreign Residents to act as a director of an Indian Company. To become a director of an Indian company, the person must first obtain a Director Identification Number (DIN) after obtaining the Digital Signature Certificate.

A Private limited company must have a minimum of two directors and can have a maximum number of fifteen directors. It is recommended that at least one director be an Indian Citizen and Indian Resident, while other Boards members can be of any nationality or residency.

The Process to Obtain Digital Signature Certificate

The foreign nationals or NRI must submit a passport size photograph, self-attested and notarized copy of his/her passport and address proof (Drivers License, Utility Bill, and Residency Card). Once, the digital signature certificate is obtained, DIN can be obtained for the foreign nationals or NRI and he/she may be added to the Board of Directors during incorporation.

Shareholding

The shareholding of the Indian company can be held by a foreign national or foreign entity, subject to the FDI norms in India. Companies Act, 2013 requires that a Private Limited Company have a minimum number of two shareholders and a maximum of two hundred shareholders. Since RBI (Reserve Bank of India) allows 100% FDI (Foreign Direct Investment) in many of the sectors of in India under the automatic route, the process for ownership of shares of an Indian Company by a Foreign Nationals or Foreign Entity is simple.

Incorporation procedure[2]

  1. Two directors are required to apply for DSC (Digital Signature Certificate).
  2. All the directors are required to apply for DIN (Director’s Identification No.).
  3. The applicant is required to apply for the name of the company in Form INC-1.
  4. After obtaining name approval from ROC, an applicant is required to file form INC-7 (Application for Incorporation of Company (Other than OPC)), form DIR-12 (Particulars of appointment of directors and the key managerial personnel and the changes among them) and form INC-22 (Notice of situation or change of address of the registered office of the company) along with Memorandum and Articles of Association of the Company.
  5. After filing of the incorporation documents, you are required to pay online ROC fees and Stamp duty. (This is based on the authorized capital of the company).
  6. After the payment of ROC fees and Stamp Duty, ROC verifies the filed documents. Form INC-22 and DIR-12 are approved through the Straight Through Process (STP) and verify form INC-7 in detail. ROC may suggest some changes in the form or attachment. We will have to make changes accordingly.
  7. Once ROC is satisfied, Certificate of Incorporation is sent through email.
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Documents required

Office address:

Address proof (electricity bill or rent agreement) and latest electricity bill in case of rented accommodation.

Indian National:

  1. PAN Card (mandatory)
  2. Address proof (electricity bill, telephone bill, bank statement or passbook or rent agreement and latest electricity bill in case of rented accommodation)
  3. Photo ID Proof (passport, Driving license, voter ID or Aadhar card)

Foreign National:

  1. Passport (mandatory).
  2. Address Proof (electricity bill, telephone bill, bank statement or passbook or rent agreement and latest electricity bill in case of rented accommodation. Document must be certified by the Indian Consulate).
  3. Photo ID Proof (Any government license or document containing the name in full, photo and date of birth. Document must be certified by Indian Consulate).

Conclusion

Therefore the Indian continent is one of the desirable and preferable continents in order to conduct business opportunities. In order to incorporate a business in India, the following aforesaid mentioned process is to be followed in the proper and precise manner by an individual whoever wants to incorporate business which the Indian Country.

Also read Changing Nature of India’s Foreign Policy

[1]https://taxguru.in/company…/wholly-owned-subsidiary-of-foreign-companyvisited on 13th sep, 17

[2]https://yourstory.comvisited on 15th sep.17