Foreign companies have interest to start their operations in India as it is one of the largest and fast-growing markets in the world. A Foreign National other than a citizen of Pakistan or Bangladesh or an entity incorporated outside India can make investment and can own their subsidiary company in India by acquiring shares subject to the FDI Policy of India. There is a minimum requirement of one Indian Director who must be Indian Resident and one is to be Foreign Director, which is needed for incorporation of an Indian Subsidiary Company.
Subsidiary Company Registration is governed by the Companies Act 2013. It defines a subsidiary as a company in which a foreign corporate body or parent company owns minimum 50% of the entire share capital. The parent company is the one wholly or partially having a control over a subsidiary company. Subsidiary companies must follow the laws of the country in which they are set up and running. Therefore, if the foreign subsidiary is incorporated in India, then it must follow the law in force in India.
The FDI is allowed 100% for the increasing growth of several business industries in India without any prior approval. However, in the business of Proprietorship, Partnership and LLP require prior Government approval for FDI.
The liability of the members and the directors are strictly limited to their shares in the company. Therefore no member or Director is responsible for any loss or financial distress if suffered by the company. The assets of personally held by Shareholders/Directors will not be at risk or not seized by any banks, creditors or government.
The perpetual succession is continued existence of the company that means any changes in members such as death, bankruptcy, exit, transfer, etc. do not affect the existence of the company.
The expansion of the business is comparatively higher as it is easy to raise the capital from any financial institutions, venture capitalist, and the investor. It has all the advantages of the Private Ltd Company, which gives more transparency.
The wholly-owned subsidiary company in India can borrow funds in the form of loans from the financial institutions.
The Indian subsidiary company has the capacity to sue and can be sued. It has its own legal capacity being a legal person.
The foreign subsidiary company has an independent structure and hence, it is permitted them to buy properties in India.
No minimum capital required to form an Indian Subsidiary Company in India.
Minimum two directors are required for incorporation of the Company. At least one should be a resident of India.
Indian Subsidiary Company must have minimum of two shareholders. Shareholders can be either individuals or any entity or a combination of both.
The Parent Company must hold 50% of total equity share capital
Director Identification Number for all Directors
Before application for name approval, foreign Company has to choose the name on basis of followings:
a) In case of Subsidiary or WOS, foreign Company can use coin word of its name as coin word for Incorporation of Company in India to take the Benefit of Its goodwill in foreign County.
b) Foreign Company can apply the same name (name in foreign country) in India by using word “India” in its name.
c) If foreign Company having any registered Trade Mark then it can use such trademark for Incorporation of Company in India.
d) Any other name as decided by the Foreign Company.
Once name approval is obtained, incorporation documents can be filed with the Ministry of Corporate Affairs to incorporate the company. The incorporation documents to be filed includes affidavits & declarations from Directors, Memorandum of Association, Articles of Association and Registered Office Address proof.
The affidavit and declarations from the Directors contain certain declaration from the Directors. Affidavit and declaration would have to be executed independently for each of the Director and notarized.
By subscribing to the MOA & AOA, the shareholders (either foreign companies or foreign nationals or Indian companies or Indian national) show their intention for becoming a shareholder in the company to be incorporated.
In case a Foreign Company is a subscriber to the MOA & AOA of the proposed Indian Company, the following documents pertaining to the foreign entity subscribing to the shares of the Indian Company must be submitted:
On submitting the above documents along with the application for incorporation of a company, the Registrar would issue a Certificate of Incorporation for the Indian Private Limited Company, if the documents submitted are acceptable.
After obtaining the incorporation certificate, the Indian Company can apply for a PAN Card and take the necessary steps for opening a bank account for the company in India.
Q. In how much time an Indian Subsidiary Company can be registered in India?
Ordinarily, within 15 business days
Q. Can a non-resident become a director of an Indian Company?
Yes, an Indian company must have at least two directors (one of them must be Indian Resident director). You can have more than one director as a non-resident director of an Indian Company’s board.
Q. What is a wholly owned Subsidiary?
A Wholly Owned Subsidiary (WOS) is a legal entity whose entire share ownership is in the hands of a foreign company.
Q. Can One Person Company can be as a Subsidiary Company?
In One Person Company a single person is the shareholder and the same will the director, who can be an Indian resident according to Companies Act, whereas in Indian Subsidiary Company one foreign director is required. Therefore, Indian Subsidiary Company cannot be a One Person Company.
Q. What is the validity of the registration of an Indian Subsidiary Company?
A registration certificate issued by the registrar of company shall be valid throughout the life of the company.
Q. Can a subsidiary leave a parent company?
No, as a subsidiary company has 50 % of its stock controlled by a parent company for the purpose of liability, tax, and regulatory reasons. However, the subsidiary and parent companies remain separate legal entities.