The Foreign Subsidiary Company

The Foreign Subsidiary Company

The foreign subsidiary company is an organization, which is wholly-owned or partly owned by the parent company, operating in one country with its parent company situated in another country. Example, a company incorporated in the USA (Parent company) is executing the same business operation through a subsidiary company in India

However, this foreign subsidiary company should abide by the rules and regulations of the domestic law of the corresponding country where it is situated. It should not follow the laws applicable to their parent company.

Foreign subsidiary company in India:

• India’s booming economy and abundance of capital make it a favored investment destination for NRIs, foreign nationals and foreign companies.
• Also, India is one of the fastest-growing economies in the world, with plenty of business opportunities in the coming decades.
• Any company which is incorporated or registered as a company outside India can operate within the country, as a part of their foreign company, is called a subsidiary company.
• This subsidiary company can be registered as a public limited or private limited company.
• A private limited company is a business that is closely owned and enjoys the rights as provided by the Companies Act, 2013.
• A public limited company is a corporation with an interest in the public and it is expected to comply with several laws and regulations set out in the Companies Act, 2013.
• A foreign company planning to set up a business or a subsidiary company in India may:
  Incorporate the joint venture (subsidiary wholly owned) under the Companies Act, 2013.
• Set up the branch offices that should carry out all the business activities permitted under the Foreign Exchange Management Rules, 2000

Companies Act 2013: Section 129

• It says the financial statements of the company should be true and fair about the affairs of the company, and should comply with the prescribed accounting standards.
• If any entity has more than one subsidiary, then the entity should prepare a consolidated financial statement of all the subsidiary companies.

Benefits of a foreign subsidiary company

• No prior approval of RBI is required for incorporation, if the subsidiary company is related to the sectors like automobiles, agriculture, electronic equipment, etc.
• Subsidiary companies can avail of several tax-benefits like incentives, exemptions prescribed by the government of India depending upon the sector they operate.
• Foreign subsidiary companies generate a lot of job opportunities thereby increasing the economic growth and national income of the country.

Checklist for establishing a foreign subsidiary company

• To incorporate a private company in India,
  Two directors
• Two members (Shareholders).
• With these two directors, at least one should be an Indian citizen a person who stayed in India at least 182 days in the previous year).
• It should have a minimum paid-up share capital of Rs 1 lakh or higher paid-up capital as determined by the Articles of Association (AOA).
• AOA will restrict the right to transfer the shares.
• Any private company registered under the Companies Act, 2013, will prohibit the promotion to subscribe for any shares or debentures of the company, by the public.
• Similarly, it will prohibit the entity to accept the deposits from persons other than the members, directors, and relatives.
• Control also becomes a concern when a company is partly owned by another external organization.
• The parent company needs to guarantee the loan obtained by its subsidiaries. So it shows the liability of the parent company to pay off the debts.
• As a subsidiary company, the decision-making process is a little bit time-consuming. Always, before making any decision, it should be consulted with the parent organization.
• The parent company can not have complete access to the subsidiary's cash flows, depending upon the management structure and the overall control of its exercises.

Procedure for registration of foreign subsidiary in India

Get Our Legal Assistance To Register For A Foreign Subsidiary Company In An Easy Manner

• To start with the incorporation process, two directors must apply for a Digital Signature Certificate (DSC), and all remaining directors must apply for a Director Identification Number (DIN).
  In Form INC-1, the applicant is required to apply for the company name.
• The company should get a name approval from the government based on the following before entering into incorporation;
• The company can use the same name as the parent company by adding the word “India” in its name.
• If the parent or foreign company has an approved trademark then it can be used for the subsidiary company, incorporated in India.
• Login to the Ministry of Corporate Affairs (MCA) portal and click “RUN” under MCA services. A new online form will be generated for applicants to fill. Details to be mentioned in the form:
  Entity type
• Corporate Identification Number (CIN)
• Proposed name
• A document like NOC, trademark documents, apostille copy of the resolution of foreign company.
• Once the proposed name of the company is approved by the Register of companies (ROC), the applicant is required to file
  Form INC-7 (Application for Incorporation of Company)
• Form DIR-12 (Details of appointment of directors and key personnel staff)
• Form INC-22( along with MOA and AOA of the Company)
• After the incorporation papers have been filed, the applicant must pay the electronic ROC fees and Stamp duty.
• ROC verifies the paperwork submitted after the fee has been paid. Form INC-22 and DIR-12 are accepted through the Straight-Through-Process (STP).
• The incorporation certificate is sent, once the ROC of the applicant is certified.

Post-incorporation compliances:

Open A Bank Account:

A bank account is required to be opened for receiving the subscriber subscription money, including an Overseas Holding Company.

Advance Reporting Form (ARF):

This is the reporting form concerning the fund/ subscription money received within 30 days from the date of receipt of funds received to RBI.

Share Allotment:

The shares should be allotted to the subscribers within 2 months from the date of incorporation of the subsidiary company.

Filing Of Form FC-GPR With RBI:

The form FC-GPR should be submitted to the RBI within 30 days from the date of allotment of the shares to their subscribers.

Documents required for a foreign subsidiary company

Basic Documents:

• Subscriber name (holding co.)
• Name of individual subscriber
• Name of assigned shareholder on behalf of a foreign Company ( parent company).
• Director DIN (minimum 2), if already having.
• Mobile Number/ Email ID/Place of Birth/Educational Qualification and occupation of Proposed Directors/subscribers/nominee shareholders.
• The objective of the proposed company.
• Company’s proposed paid-up capital
• Percentage of shareholding of subscribers
• Self-attested copy of the director/subscriber/nominee (for Indian nationals) PAN Card.
• Self-certified copy of Identification Proof of the proposed director(Voter Identification / Passport / Driving License)
• Self-certified copy of Proposed Directors / Promoters / Nominee's Residential Evidence (Bank Statement / Electricity Bill / Telephone Bill / Mobile bill) (not older than two (2) months) Director / Subscriber / NomineeSelf-attested copy of Aadhaar card of director/subscriber/nominee (for Indian nationals)
• A self-attested copy of passport is mandatory, in case of foreign nationals.
• Details of Directors in other Companies:
  Name of the Company(s)
• Designation
• Shareholding %
• Nominal Value of Shares
• Other Interest, if any.
• Landline Number of directors/promoters, if available.
• Copy of /telephone/mobile Bill/electricity (not older than two months) of the proposed registered office address.
• 3 Latest passport-size photos of each proposed director/subscriber.
• DSC of subscribers.

Other important documents:

• E-Form RUN-Approval of the name (name valid for 20 days only).
• e-Form Spice (INC-32) attachments like
  Affidavit duly notarized about the non-acceptance of a deposit.
• A declaration endorsed by an attorney, a Chartered Accountant, Cost Accountant, or Company Secretary shall be properly notarized in Form No. 8.
• Declaration of the first director in Form DIR-2
• In the duly notarized Form-9, each subscriber and each director should submit an Affidavit.
• Self-certified copy of PAN card of the proposed directors and subscribers as stated in the MOA
• Self-certified copy of address proof of the proposed directors and subscribers as stated in the MOA
• Self-certified copy of identity proof of the proposed directors and subscribers as per MOA.
• Copy of the rent/lease agreement.
• NOC from the landlord.
• MOA, AOA & COI of the foreign Company, certified by the director of that company duly translated in English (if not mentioned in the English language) Certified/approved by the Indian Consulate.

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