An Explainer: How A Foreign Company Can Have A Fully Owned Subsidiary In India

Entry India

Introduction

India has long been a popular destination for foreign companies looking to establish a foothold in the Asian market. And while there are many ways for a foreign company to do business in India, setting up a subsidiary is often the most advantageous option. In this article, we’ll explain what it means for a foreign company to have a subsidiary in India and how the process of establishing one works.

What is a foreign company?

As per section 2(42) A foreign company is any company or body corporate that is incorporated or registered outside India, but has a place of business in India and does business there, either by being physically present in India or through electronic means, or through agents, or conducts its business activities in India through any other means.

What is a subsidiary?

Under Section 2(87) of the Companies Act, a company is deemed to be controlled by another company if that holding company has the ability to appoint or remove a majority of the Board of Directors. This means that if a holding company controls 50% or more of the shares of a company, then it will be considered to be in control. If a subsidiary of a holding company controls a majority of shares within its own group, then it will also be considered as a subsidiary of the holding company.

What are the benefits of having a subsidiary in India?

Protection of trade secrets: – Both the companies get protection and security for their trade secrets, technical knowledge, and expertise as well as a great degree of control over the operations.

Limited liability: – The holding company and the subsidiary company both have limited liabilities. This means that the holding company doesn’t have to bear the losses of the subsidiary company if it experiences any losses.

Keeping brand name: – A WOS can keep its brand name with it, and the holding company can have a chance to branch out into new markets.

Greater cooperation: – Companies can use a common financial system, and share their administrative and other expenses. This provides them a huge benefit by making things cost effective.

Full control: – A holding company has a lot of advantages when it comes to having full operational and strategic control over its subsidiary company. This gives the holding company a lot of power and influence when it comes to making decisions for the subsidiary.

How can a foreign company set up a subsidiary in India?

The process for a foreign company to set up a subsidiary in India is relatively straightforward, but there are a few key things to keep in mind.

Basic conditions

  • As per section 3(1) (b) of companies act, every company shall have at least 2 Promoters.
  • As per section 149(1)(A) of companies act , every company shall have at least 2 director and at least 1 resident director As per sec 149(3).
  • DSC for directors [ Companies (Appointment and Qualification of Directors) Rules, 2014, Rule 6(2)(a)].
  • As per section 152, 153, and 164, Companies act, read with Companies (Appointment and Qualification of Directors) Rules, 2014 in e-form DIR-3 and Companies Director Identification Number (Second Amendment) Rules, 2011] , every director should have a directors identification number (DIN).
  • As per Section 12, Companies Act, every company should have a Registered office in India.

                Basic Documents Required

                  By an Indian

                 Address Proof.

                PAN Card (Mandatory).

                 ID Proof.

                   By a Foreign National

                  Passport (Mandatory).

                  Address Proof.

                   ID proof.

Drafting of Memorandum of Association (MOA) and Articles of Association (AOA)

Once you receive the approval of ROC, the next step is to draft Memorandum of Association and Articles of Association. The model Memorandum of Association is found in Table A, B, C, D, and E of Schedule I of the Companies Act, and the model Articles of Association are found in Table F, G, H, I & J of Schedule I. For reference, you can visit the official website of MCA.

Important attachment for the registration

INC-7


Memorandum of Association, Articles of Association

Affidavit from Subscribers in INC-9, Specimen signature in INC-10, Declaration by professional INC-8, Copy of PAN Card, Copy of ID proofs, Copy of Address Proofs, Affidavit for non-acceptance of deposits, Directorship/Promoter ship in other companies (if more than 3), Copy of License received from Competent Authority., Board Resolution of Foreign Company (Body corporate subscriber), Certificate of Incorporation & proof of registered office(Foreign Body corporate subscriber), Entrenched Articles, Proof of Nationality(In case of foreign national), Declaration by the foreigner if he does not possess PAN(as per MCA circular 16/2014)

Mandatory,

 

 

NOC in case there is a change in the promoters, Principal approval was taken from RBI for carrying NBFC activity

 

DIR-12 1. Consent in DIR-2 along with ID & Address proof

2.Affidavit from Directors in INC-9

INC-22 1.Utility Bill, not older than two months old (Apostle from the Foreign Country).

2.Proof of registered office address.

3. No objection certificate in case registered office is not taken on lease.

Conclusion

India has been a popular destination for foreign companies for many years. And while there are many ways for a foreign company to do business in India, setting up a subsidiary is often the most advantageous option. In this article, we’ll explain what it means for a foreign company to have a subsidiary in India and how the process of establishing one works.