Setting up a subsidiary in India

What is the ideal business structure to form an Indian Subsidiary Company for a Foreign Holding Company?

Only two business structures allow foreign investment in an Indian business entity, namely, a Limited Liability Partnership and a Private Limited Company. Though foreign investment in LLPs is allowed, it requires prior approval of the Reserve Bank of India (RBI) and Foreign Investment Promotion Board (FIPB). A Private Limited Company, on the other hand, allows foreign investment under the Automatic Approval route in most sectors.

Private Limited Companies have better recognition and standing in relation to an LLP. This enables them to have better access to bank loans and funds. Hence, it is generally preferred to incorporate a Subsidiary of a Foreign Holding Company as a Private Limited Company.

What is a holding company?

As per Section 2(46) of the Companies Act, 2013 a holding company owns at least 50% of the other company, has the authority to make management decisions and controls the other company’s board of directors. A holding company may exist for the sole purpose of controlling and managing subsidiary companies.

What is a subsidiary company?

Section 2 (87) of the Companies Act 2013 defines a subsidiary as a company in which the holding company:

(i) controls the composition of the Board of Directors; or

(ii) exercises or controls more than 50% of the total share capital either on its own or together with one or more of its subsidiary companies.

How should the Foreign Holding Company invest in the Indian Subsidiary Company?

The share capital invested by the holding company is transferred to the bank account of the Indian subsidiary company by following the guidelines notified by the Reserve Bank of India (RBI) along with compliances under the Companies Act 2013 and Foreign Exchange Management Act.

What are the minimum requirements for incorporation of a Subsidiary Company in India?

• Directors: In a Private Limited Company there should be a minimum of two (2) directors. To become a director, a Director Identification Number (DIN) must be obtained. At least one of the Directors must be a Resident of India, who has stayed at least 182 days in the previous financial year but from Budget 2020 i.e. financial year from 2020-21, this period has been reduced to 120 days.
• Shareholders: A Private Limited Company requires at least two shareholders to register. The shareholders can be an individual or an entity represented by an authorised individual. A Private Limited Company can have up to 200 people as members as per the Companies Act, 2013. There is no requirement for the shareholder to be a resident of India.

What documents are need to incorporate a subsidiary company?

Indian Director KYC Documents

• Scanned copies of Pan Card, Aadhar Card for DSC application
• Driving License/ Voter’s ID/ Passport Copy as Identity Proof
• Bank Statement/ Telephone Bill/ Electricity Bill (Latest month’s scanned copy needed) as Address Proof
• Passport size photo

Foreign Director KYC Documents

• Scanned copies of Passport, residence proof of the foreign director for DSC application
• Bank Statement/ Telephone Bill/ Mobile Bill/ Electricity Bill (Latest Month’s scanned copies needed) as Address Proof
• Passport size photo

Address proof of the proposed registered office

• Scanned copy of Rent Agreement of registered office
• Latest utility bill of registered office
• No Objection Certificate from the owner of the Premises (format of NOC downloadable from Insta C.A. dashboard on purchase of plan)

What is the application process for incorporation of a Subsidiary Company?

Step 1: Acquire Digital Signature Certificate for Directors and Subscriber:

The first and foremost step to register a private limited company is to acquire a Digital Signature Certificate (DSC) of the Directors and shareholder. Any e-form is filed with the Ministry after affixing the DSC of the authorised signatory for company incorporation. It is also required for the application of Director Identification Number (DIN) of the directors.

Step-2: Name Approval Application:

The next step in company registration involves making an application for reservation of name of the proposed company. The application is to be made in 'Part A' of SPICe+ Form, where one can apply for maximum 2 names in order of preference. One shall keep in mind that the names applied are not identical or nearly resembling with any existing Company or LLP or registered trademark.

Step-3: Drafting of Memorandum of Association (MOA) and Articles of Association (AOA)

The Memorandum of Association (MOA) and Articles of Association (AOA) are drafted and apostilled in the home country of the shareholder company.

Step-4: Application for Certificate of Incorporation:

After submitting 'Part A' of SPICe+ and upon choosing to proceed with incorporation, 'Part B' is enabled for making an application of for Certificate of Incorporation in SPICe + form and AGILE-PRO Form. AGILE stands for Application for Goods and Services Identification Number, employees' state insurance corporation registration plus employees' provident fund organization registration.

After due verification of the application and documents provided, the concerned ROC may grant the Certificate of Incorporation (COI). It is a conclusive proof of the existence of the company, wherein the date of incorporation, Company Identification Number (CIN), Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) are mentioned with the sign and seal of the registrar.

What are the Memorandum of Association and Articles of Association?

Memorandum of Association (MOA) and Articles of Association (AOA) are the two most important documents for any company and mark the last step in the process of registering a Company. MOA of the company states the scope of operations of the company, whereas AOA states how the company will be carrying the operations as per the Companies Act,2013.

What is the Director Identification Number (DIN)?

Director Identification Number (DIN) is a unique identification number required for a person to become a director of a company. DIN is issued by the ROC office(Ministry of Corporate Affairs). DIN is to be mentioned in documents while appointing a person as a director of a company. All present or proposed Directors must have a DIN. It never expires and a person can have only one DIN, further with the same DIN, it allows an individual to be a Director in any Company or Designated Partner in an LLP.

What is SPICe and SPICe+ form ?

SPICe stand for Simplified Proforma for Incorporating a Company Electronically. As per the Ministry of Corporate Affairs, while SPICe is an eform, SPICe+ is an integrated Web form offering 10 services by 3 Central Govt Ministries & Departments. (Ministry of Corporate Affairs, Ministry of Labour & Department of Revenue in the Ministry of Finance) and One State Government (Maharashtra), thereby saving as many procedures, time and cost for starting a business in India. SPICe+ is part of various initiatives and commitment of Government of India towards Ease of Doing Business (EODB).

It is an all-inclusive form that helps incorporate a company with a single application for reservation of name, incorporation of a new company and/or application for allotment of DIN hence fast tracking the process of Company Incorporation.

What are the forms to be submitted with the Reserve Bank of India (RBI) once the investment is received by the Indian Subsidiary Company?

1: Advance Reporting & KYC Form

The Indian subsidiary company should file a report specifying he amount of consideration for issue of shares /Convertible debentures under the FDI Scheme. This form should be filed with the RBI within 30 days of receiving funds from foreign investor(s).

2: FC-GPR Form

The company has to file form FC-GPR with the RBI within 30 days from the date of issue of shares along with:
– A Certificate from the Company Secretary certifying that the company has complied with the procedure laid down under the Foreign Direct Investment (FDI) Scheme, and,
– A certificate from a Chartered Accountant indicating the valuation of the shares issued, if required.

3: Foreign Liabilities and Assets (FLA) Form

An annual return on Foreign Liabilities and Assets is required to be submitted reporting all the investments received during the year.

*This is not included in the Indian Subsidiary Incorporation Package. Please contact info@instaca.in for more information.

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