Closing a foreign subsidiary company is a tedious task. The Indian party has to pass the board resolution and file from ODI part III. Learn more about how to do it?
A foreign subsidiary company is a group of companies, which is fully owned or partly owned by the parent corporations, operating in one country with its parent company located in another country. For example, a company started in the USA (Parent company) is running the same business system through a subsidiary company in India
This foreign subsidiary company should accept all rules and regulations of the domestic country law of the other country where it is located. It should not function as per the laws acceptable to its parent company.
Foreign Subsidiary Company in India and Its Compliance With the Companies Act 2013, Section 129
For a firm to be a foreign subsidiary company in India, the firm itself must be present in India. It does not matter which country the parent corporation is incorporated in.
Compliances are established based on numerous characteristics of the firm. They must believe that all compliances are presumed to be fulfilled according to the category of a firm that is integrated, the industry of systems, annual turnover, and the total number of workers should be reported. A foreign corporation is defined under Section 2(42) of the Companies Act, 2013, such a corporation must follow restrictions and regulations organised under numerous legislations
Closure of a Foreign Subsidiary of an Indian Company
Many Indian firms also have subsidiaries across the world or are governing prominent corporate entities out of India. Because of the COVID-19 pandemic and its negative impact on the world’s large economy, many such Indian corporations might not find any justification to continue their business worldwide. So they plan to wind it up.
The Indian Party has to carry the board results and discord the form Overseas Direct Investment(ODI) part III along with the supporting documents linked with the closure of all the Joint Venture (JV) or Wholly Owned Subsidiary (WOS) with the approved dealer. The legal dealer in turn articles in the online Original Issue Discount (OID) petition through their nodal headquarters.
Disinvestment by Way of Sale of Shares of JV/ WOS outside India Without Write-off
An Indian Party may sell or transfer a deal to another Indian Party or a city outside India. Any share or insurance held by it in a JV/ WOS outside India is subject to the following conditions:
- In case investments of overseas JV/WOS are documented, the deal is to be done through stock purchase
- In case investments from all over the world, JV/WOS is not recorded and percentages are disinvested by a private agreement – the share rate should not be less than – the value authorised by a chartered accountant
- An Indian Party does not have any pending payments from the overseas JV/ WOS
- The overseas JV/WOS has been in the system for at least one full year and the Annual Percentage Rate (APR) jointly with audited reports for that year has been accepted by the reserve bank
- An Indian Party is not under any inquiry by any regulatory administration in India.
Disinvestment by Way of Sale of Shares of JV/ Wos Outside India With Write-off
Indian Party may disinvest, without prior authorisation of the reserve bank, in any of the outstanding scenarios where the amount after disinvestment is limited than the actual amount invested:
- Where the JV / WOS is recorded in the overseas commodity trade
- Where the Indian Party is listed on commodity trade in India and has a net wealth of not less than ₹100 crore
- Where the Indian Party is a company that is not listed and the investment in the overseas investment does not over $10 million
- The Indian Party is a listed firm with a net worth of fewer than ₹100 crores but investment in an overseas JV/WOS does not exceed $10 million.
Indian Party shall repatriate to India sale dividend of investment within 90 days from the date of sale of shares and the documentary information on this impact shall be fulfilled to the RBI through the designated AD bank and helps at process of company formation.
Reporting the Requirement in the Outbreak of Disinvestment: Form ODI Part III – Report on Disinvestment Using
- a) Closure, spontaneous liquidation, winding up, union, or amalgamation of worldwide JV/WOS
- b) It is eligible to Sale or transfers the shares of the overseas JV/ WOS to resident or non-resident
- c) Closure, voluntary liquidation, winding up, union, or amalgamation of Indian Party
- d) Buy back the shares by the overseas JV/WOS of the Indian Party or Resident of the state.
Reasons for Closing a Foreign Subsidiary
There are many intentions for completely closing their foreign entity, some of them are:
- Low income and/or high expenditures
- Problems about strong establishment and taxation or unnecessary responsibility of other immigration/employment compliances particularly for non-productive commodities
- Safety issues, changes in demands, and prospect base
- Economic decelerations
- Increasing dependence on home government systems. The documents presented at the time of foreign pvt ltd company registration process are also needed!
How Vakilsearch Can Help in the Closure or Registration of Foreign Subsidiary Companies?
The process to shut down an overseas subsidiary will vary according to the location and the extent of the obligation to the country. However, there are some aspects that the Indian party has to achieve in India as well. Reach out to our experts at Vakilsearch who can help you regarding any queries of foreign subsidiary companies.
We carry out legal work with over 1000 companies and LLPs each month. Our experts will handle all paperwork, ensuring a seamless interactive process with the government. Clarify the startup process to set realistic expectations. With a team of over 300 experienced management consultants and legal experts, Vakilsearch is a one-stop solution for all your needs.
