Overview of Indian Subsidiary Company Registration
Foreign investors want to invest in India due to growing opportunities. Due to this, foreign investment in India is booming with more amount of investment in different areas. Ever since Economic Liberalisation occurred in 1991, the Indian economy has boomed with the increase in the amount of foreign direct investment in the country.
With the introduction of the Foreign Exchange Management Act, 1999 (FEMA), the government repealed the Foreign Exchange Regulation Act (FERA). Through FEMA investing in India became more straightforward. The Reserve Bank of India (RBI) brings out different rules for Indian Subsidiary Company formation and registration.
Recent amendments in the FDI policy of India in April 2020 have brought sweeping changes in the amount of foreign investment in the country. As per this amendment neighbouring countries that share land borders with India require government approval before investing in India. Seven countries share land borders with India. Before this amendment, investing in India was seamless and straightforward with fewer formalities.
Hence investment from the above seven countries would require prior approval from the relevant regulatory authority. Setting up an Indian subsidiary company requires compliance with several statutory laws.
Statutory Meaning of the Indian Subsidiary Company
Under section 2(87) of the Companies Act, 2013, a subsidiary company is understood as a company which is controlled by another company. To further emphasize the meaning of subsidiary company, it is crucial to understand the meaning of a holding company.
Under section 2(46) of the Companies Act, 2013, a holding company is an entity which controls more than 50% stake in another company. Hence, if there is control over the management of another company, the former company is known as a holding company.
Indian Subsidiary Company has been defined under the Companies Act, 2013. An Indian subsidiary company can be understood as a company which is controlled by a foreign company. Hence the foreign company will own more than 50% of the paid-up share capital of the Indian subsidiary.
In other words, the foreign entity will be understood as the holding company, and the foreign entity will control the subsidiary. If a subsidiary is established in India, then it is mandatory to follow the laws in force in India.
When it comes to the status of an Indian Subsidiary Company, then the principle of separate legal entity would also apply to the subsidiary company. Hence the status of the shareholders and directors of the subsidiary is different from that of the company. Under the Companies Act, 2013, an Indian subsidiary can be either registered as a private limited company or a public limited company.
Advantages of Indian Subsidiary Company Registration
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Foreign Direct Investment in India (FDI)
Foreign Direct Investment can be understood as a form of direct or indirect investment made by a foreign company in a private limited company. The foreign company acquires or subscribes shares of a private limited company in India. However, the government has changed the policy requirements for FDI in India. Prior approval will be required from the government if an investment is coming from a country that shares land borders with India. However, registering the Indian subsidiary company would attract a lot of foreign investment in the country.
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Perpetual Succession
When a foreign entity establishes a subsidiary, then it can succeed even after there are many changes in the management of the company. The status of the subsidiary company will not come to a halt. Once a company is established in India, the operations can be easily carried out.
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Independent and Separate Entity
The entity or Indian Subsidiary is separate from its foreign parent. Even though there is control over the management of the Indian subsidiary, still this entity has a separate and independent legal existence from its foreign parent.
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Limited Liability
The principle of limited liability which would apply to private and public limited companies would apply to an Indian Subsidiary company. Limited liability means the liability of the members is limited to a specific amount. Members of the company would include directors and shareholders. The principle of limited liability would protect the directors and shareholders from any loss faced by the company. Limited liability would make the company liable to the debts owed to third parties. However, under this principle, any third-party creditor cannot go after the personal assets of directors and shareholders.
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Scope of Diversification
When a foreign entity wants to expand its activities in India, then the same can be achieved through an Indian subsidiary company. New areas and products can be launched through this process. However, it is important to carry out prudent market research before taking this step. New activities can be achieved through this process.
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Can Sue
As the company is a separate legal person, it can enter into contracts and agreements. Under the Companies Act, 2013, an individual (natural person or artificial person) can enter into legal agreements. Such an entity has the power to enter into contracts and also file legal cases (sue) other parties for any form of breach of obligations.
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Purchase Property in India
In India, any individual or artificial person has the ability to purchase properties. Similarly, a company under respective conveyance laws can purchase properties in India.
Hence there are many benefits of Indian subsidiary company registration in India.
Regulatory Body for Indian Subsidiary Company
The primary regulatory authority for Indian Subsidiary company registration is the Ministry of Corporate Affairs (MCA). Apart from this, the Registrar of Companies (ROC) would handle all matters relating to company incorporation procedures. Other regulatory authorities which manage Indian Subsidiary compliance is the Reserve Bank of India.
What are the compliances related to Indian Subsidiary Registration?
There are different compliances which have to mandatorily adhere in the Indian Subsidiary Registration Process. The following compliances have to be regularly followed by such entity:
- Companies Act, 2013- Any company which is formed in India would have to comply with compliances under the Companies Act, 2013.
- Foreign Exchange Management Act, 1999- A foreign company which is planning to establish in India has to comply with respective foreign exchange laws in India.
- RBI Compliance- With compliance under the Foreign Exchange Management Act, the Indian Subsidiary company has to also comply under respective RBI Compliances.
- Income Tax Act, 1961- All companies that are present in India have to file Income Tax Returns. The current corporate tax rate prevalent in India is 22%. Hence a foreign company that establishes an Indian subsidiary company has to comply with respective tax rates.
- Annual Returns for ROC and MCA- Companies also have to file annual compliance with the Registrar of companies and the Ministry of Corporate Affairs.
- Securities Exchange Board of India- If an Indian subsidiary company lists its securities in a stock exchange, then compliance has to be followed under respective SEBI laws. Under the SEBI (Listing Obligations and Disclosure Regulations) compliance has to be maintained.
Procedure for Indian Subsidiary Registration
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Consider the Name for Indian Subsidiary
Under the Ministry of Corporate Affairs, companies that are incorporated in India can be registered as per the requirements of MCA. When incorporating a subsidiary the requirements of the SPICe+ form have to adhere. During this process, the company has to consider a unique name. After considering the name, the same has to be reserved for a specific period of time. The name of the company must be unique and not go against provisions related to Intellectual Property Law in force in India.
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Apply for Director Identification Number and Digital Signature Certificate
For the appointment of directors, the DIN is issued by the regulatory authority. Apart from this the entity must also apply for the Digital Signature Certificate. The DSC will help in electronic signature processes for companies. Documents can be electronically signed and sent through the system of digital interfaces.
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Apply for the PAN and TAN Number
Once the DSC and DIN have been applied for then, the subsidiary company has to make an application for PAN and TAN. This is a mandatory requirement which have to be filed as per the requirements of a company.
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Open a Bank Account for the Subsidiary
An Indian Subsidiary Company has to open a bank account. This is mandatory for carrying out different transactions on behalf of the subsidiary.
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GST Number
After this GST (Goods and Services Tax) number will be provided to the company. When carrying out different services this number would be applicable. All companies that are established in India have to mandatorily apply for GST registration.
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Start Operations
Once the above procedure is complete, the company can start carrying out business operations.
Documents for Indian Subsidiary Company Registration
- PAN Card
- Aadhaar Card
- Any form of Address Proof
- Passport, Visa if the applicant is a foreign national
- Any identification proof provided by the foreign national must be attested and certified by an India Consulate
- DIN – Directors Identification Number
- Digital Signature Certificate
- Any utility bills of the premises- If the premises is owned by the company
- If the premises are not owned by the company, then the lease agreement has to be produced
- Address Proof of the Registered Office
- Memorandum of Association (MOA) and Articles of Association (AOA) for incorporating the Indian Subsidiary
- Certificate of Incorporation
Enterslice Advantage- Indian Subsidiary Company Registration
- Enterslice main aims is to add value to you business.
- Our team of professionals comprising of Chartered Accountants, Company Secretaries, Lawyers, and Financial Executives.
- We have experience in registering different forms of entities.
- Constant monitoring and 24*7 customer service.
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