Understand essential considerations for foreign companies venturing into India through a subsidiary or Wholly Owned Subsidiary (WOS)
For investors eyeing expansion into the thriving Indian market, choosing the right business structure is paramount. India’s diverse legal landscape governs various company types, each with its set of regulations. Know about Subsidiary or WOS in this blog!
Navigating the nuances between a subsidiary and a wholly-owned subsidiary (WOS) is essential, as each presents unique benefits and considerations. This blog at Vakilsearch aims to shed light on the distinctions between a subsidiary and a wholly-owned subsidiary when establishing operations in India. If you’re contemplating entering the Indian business landscape, read on to gain valuable insights for informed decision-making.
What Is a WOS in India?
A wholly-owned subsidiary company is incorporated under the Companies Act, 2013 and holds 100 percent of the company’s shares. A wholly-owned subsidiary company is one whose entire share capital is owned by another Indian or foreign company.
In India, companies can be registered as private limited or public limited companies. Private limited companies are closely held companies. The Companies Act of 2013 outlines many rules and regulations that must be followed by companies that are public limited companies. Most foreign companies prefer to form wholly-owned subsidiaries in India.
Requirements for Setting WOS of a Foreign Company in India
- To register an Indian subsidiary company, at least one of the directors must be an Indian citizen and a resident of India.
- There must be at least two shareholders. To fulfil the requirement, one nominee shareholder will hold on behalf of the holding company. The residential status of shareholders is not a requirement. Shareholders can be individuals or entities, or a combination of both.
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Incorporation of a wholly-owned subsidiary
The Ministry of Corporate Affairs (MCA) website requires the filing of Form Spice+ Part B and C for registration of the proposed WOS.
The following services are available through the above form:
- Company incorporation
- DIN (Director Identification Number) allocation
- Permanent Account Number (PAN) issuance
- TAN (Tax Collection Account Number)
- Social Security number registration
- Profession Tax Registration
- Choosing a bank account
- Goods and Service Tax registration
Step-by-Step Guide to Creating a Wholly-Owned Subsidiary
- Select a company name for your wholly-owned subsidiary
- File Articles of Incorporation with the secretary of state office in the state you would like to create this subsidiary.
- Select a bank for your wholly-owned subsidiary.
- Apply for an Employer Identification Number with the Internal Revenue Service (IRS)
- Apply for a business license from your city or town hall’s office
- Join or form a trade organization in order to be able to offer specialized services in your field and wholly-owned subsidiary.
What Is a Subsidiary in India?
The term foreign subsidiary refers to a company registered in a foreign country but which is majority-owned by another company. For example, suppose your company is based in the US, and you wish to expand into India.
In that case, you should establish an Indian subsidiary. Despite working under the direction of the parent company, it is a separate legal entity. The subsidiary can enter into contracts, own property, and sue independently.
Establishing a subsidiary in India is a complicated process. As you expand your business, you must find the time and money needed to learn every Indian subsidiary law. Another layer of complexity is added by the fact that regulations and rules vary by state and region. Let Vakilsearch handle the confusion instead of you.
How to Set Up an India Subsidiary?
Before setting up a subsidiary in India, you’ll need to consider multiple factors. Identify the sector or industry you will be entering.
FDI regulations in India are different for different sectors, so obtaining prior approval from the Reserve Bank of India before establishing your business presence is essential.
The process of incorporating a company in India can be long and challenging, costing companies a lot of money before the process is completed. Businesses decide whether to form a private limited company or a public limited company based on how active they intend to be in the country.
Incorporation involves the following steps:
- Online Director Identification Number (DIN)
- Obtain a Digital Signature Certificate (DSC)
- Register a business name with the Registrar of Companies
- Prepare the Memorandum of Association and Articles of Association
- File the incorporation application online
- Request a certificate of incorporation
- Design a company seal
- Create a permanent account number (PAN)
- Register with the Employees’ Provident Fund Organization(EPFO)
- Register for VAT
- Obtain medical insurance
Step-by-Step Guide to Creating a Subsidiary
To create a subsidiary, you must file Articles of Incorporation with your local secretary of state office. A parent company controls the subsidiary but has less control over the wholly-owned subsidiary. To create one of these subsidiaries, you must file Articles of Incorporation with your local secretary of state office.
Follow this step-by-step guide to learn more about creating a subsidiary and a wholly-owned subsidiary:
1) Determine what type of business entity you have
2) Find out the rules for that type of business entity in your state
3) File Articles of Incorporation with your local secretary of state office
**Suppose the foreign company wishes to use its own name in India. In that case, it needs to pass a resolution to this effect and provide it with the application for name reservation.
Documents Required for Filing the Name Reservation Application
- Resolution of the foreign company (apostilled)
- Apostilled charter (MOA) of the foreign company
- No objection letter from the foreign company to use its own name (apostilled)
- If a foreign company has the trademark, then a copy of the trademark registration certificate (duly apostilled)
RBI Compliance for FDI Received in India
The contribution of capital from a foreign citizen to the company is considered a foreign direct investment (FDI), and RBI compliance must therefore be attained by the newly registered company in India. It involves the following steps:
- An Indian bank account receives subscription money from a foreign bank account. The remitter bank must provide a Foreign Inward Remittance Certificate (FIRC) and Know Your Customer (KYC) documents.
- Allocation of shares to subscribers.
- Reporting in Form FC-GPR to the concerned AD bank within 30 days of allotment with periodic follow-ups from the bank.
Conclusion:
Deciding to set up a foreign subsidiary or Wholly Owned Subsidiary (WOS) in India involves careful consideration. Whether choosing a WOS or a subsidiary, understanding the differences is crucial. Vakilsearch’s blog provides valuable insights for foreign companies entering India, explaining the nuances between these structures and offering step-by-step processes.
From legal requirements to name reservation and RBI compliance, this guide serves as a helpful resource. As the Indian economy grows, making an informed choice between a subsidiary and a WOS is essential for investors. Use this guide to make smart decisions aligned with your business goals when venturing into the Indian market.
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