Incorporation of Indian Subsidiary

Registration of Indian subsidiary

Subsidiary registration in India

The expansion of Indian market has made it a global market for many companies around the world. Thus, a lot of foreign companies are showing interest in starting their operations in India. Having access to the best human resources, India is now one of the top choices for many investors. But before operating in India, they need to register as a subsidiary company in India. As per the Companies Act, any company incorporated outside India can (other than Pakistan and Bangladesh) can own a company registered in India by buying the shares of that company. It is also mandatory that the entity must have one Indian director and Indian resident for incorporating as an Indian company. 

To register as a subsidiary company in India, all foreign companies must follow the following strategies.

Private limited company      

Incorporating as a private limited company in India is the easiest type of subsidiary registration. All the foreign entities are allowed to have a foreign direct investment up to 100% in a private limited company. It is also allowed under the direct routes. That means if any foreign entity wants to incorporate as a private limited company, then they don’t need any permission from the central government. Thus, the Incorporation of a private limited company as a completely owned subsidiary is the fastest and cheapest entry strategy for foreign companies.

Limited Liabilities partnerships

Incorporating as LLP is also an entry strategy for foreign nationals. As per the Companies Act, now 100% of foreign direct investment is possible in LLPs. But the only disadvantage that you get is, you cannot have stakeholders. It is represented by partners. Thus, it makes an ideal choice for foreign investors and firms.

Sole proprietorship or partnerships

The proprietorship firms are the basic business entities used by small businesses. Foreign investments in proprietorship or partnership firms require approval from RBI. Thus, it makes proprietorships and partnerships firms an inappropriate entry for foreign entities. 

Registration of BO/PO/LO

If any foreign entity wants to register as a branch office, project office, or liaison office, they have to seek the approval from the RBI. Thus, the registration of BO/PO/LO takes more time as compared to Incorporation of a private limited company. Further, All foreign companies cannot open BO/PO/LO in India. Indian government only permits well established foreign companies for registering as BO/PO/LO. Hence, it becomes a limited option for foreign investors.

Foreign direct investment is permissible up to 100% in the Indian private limited company. A foreign entity can have FDI up to 100% in almost all sectors. However, there are some industries that need the prior permission of central government for investment. The industries that need permission are:

1) Petroleum sector other than private oil refining, Natural gas and LNG pipelines

2) Investment in infrastructure companies

3) Investment in the defense sector and strategic industries

4) Atomic minerals industries

5) Print Media like newspapers

6) Investment in broadcasting services

7) Postal services

8) Foreign investments in courier services

9) Establishments for operations of satellites 

10) Investment in township development

11) Tea industry

12) Asset reconstruction entities

If any foreign entity wants to incorporate a private limited company in India, then they have to comply with some major compliance. Any private limited company in India must have at least two directors and two stakeholders. A shareholder can either be a person or a corporate entity. Similarly, the director of a private limited company must be a person. 

Any foreign national can become a director of a private limited company in India. The private limited company in India must have one Indian citizen and resident on the board of directors. However, there is no specific requirement that an Indian director must be a shareholder in the company. Thus, most of the foreign entities prefer to incorporate as a private limited company in India having three directors- one Indian director and two foreign nationals directors.   

Registering as an Indian private limited company offers numerous benefits to a foreign entity. One such is the shareholding structure. 100% stakes of an Indian company can be held by the combination of foreign companies. As per the Companies Act, all the Indian private limited companies must have two shareholders. Thus, one entity or person cannot hold all the shares.

For filing the incorporation documents, the digital signature is an essential document for a company. Thus, all the foreign entities who want to invest in an Indian private limited company must obtain the digital signature of more than one director.

Any foreign entity can obtain the name approval while applying for the digital signature. But as per the Companies Act, the name of all the entities registered in India must be unique. It must not match the name of any other entity. Thus, any foreign entity that wants to have subsidiary registration must obtain the name approval first.

Once you obtain the name approval, you can file documents with MCA. The incorporation documents that should be attached includes the affidavits and resolutions from the board of directors. It also includes other documents such as Memorandum of Association, Articles of Association, and address proof of the registered office.

Subscription to the MOA and the AOA is an essential part of subsidiary registration. It shows the intentions of the foreign entities to become a part of the company. If any foreign company wishes to be a subscriber of MOA and AOA, then they have to pertain certain documents like

1) A resolution passed from the board meeting that authorizes the investment in shares of an Indian company.

2) Copy of incorporation certificate from the foreign entity

3) Copy of address proof of the foreign entity

After submitting all the documents, the registrar will issue a certificate of Incorporation. After obtaining the Incorporation, now the Indian company can apply for PAN and open ban accounts.