An Indian subsidiary – Overview
Due to expanding opportunities, foreign investors are drawn to invest in India. As a result, there is an increase in foreign investment in India across all sectors. The surge in foreign direct investment into India has led to a boom in the Indian economy ever since Economic Liberalization took place in 1991.
The Foreign Exchange Regulation Act was repealed by the government when the Foreign Exchange Management Act (FEMA) was introduced in 1999. (FERA). With the help of FEMA, investing in India became simpler. For the creation and registration of Indian Subsidiary Companies, the Reserve Bank of India (RBI) issues certain regulations.
The quantity of foreign investment in India has seen significant changes as a result of recent modifications to the country’s FDI policy, which took effect in April 2020. According to this legislation, foreign investors must obtain government authorisation before making investments in India. India has territorial boundaries with seven other nations. Prior to this change, investing in India was simple and required fewer processes. Therefore, investment from the aforementioned seven nations would need prior clearance from the appropriate regulatory body. The creation of an Indian subsidiary business necessitates adherence to certain statutory laws.
A subsidiary company is defined as a company that is controlled by another business under section 2(87) of the Companies Act, 2013.It is essential to comprehend what a holding company means in order to underline the meaning of a subsidiary firm.
A holding company is defined as an organization that owns more than 50% of another company under Section 2(46) of the Companies Act, 2013. Consequently, the previous company is referred to as a holding company if it has authority over the management of another business. The Companies Act of 2013 defines an Indian subsidiary company. A company under the ownership of a foreign corporation is referred to as an Indian subsidiary company. As a result, the foreign company will hold more than 50% of the Indian subsidiary’s paid-up share capital.
To put it another way, the foreign firm will be regarded as the holding company and will have authority over the subsidiary. The laws in effect in India must be adhered to if a subsidiary is established there. The idea of a separate legal entity would likewise apply to an Indian subsidiary firm when it comes to its legal position.
The shareholders and directors of the subsidiary therefore have a different status than the corporation.
A private limited company or a public limited company may be registered as an Indian subsidiary under the Companies Act, 2013, depending on the situation.
Indian foreign direct investment (FDI)
A foreign corporation making a direct or indirect investment in a private limited company is said to be making a foreign direct investment. Shares of an Indian private limited company are purchased or subscribed for by the foreign corporation. But the government has altered the conditions for FDI in India.
If an investment is coming from a nation that has land bordering India, prior government clearance will be necessary. The registration of the Indian subsidiary firm would, however, bring in a lot of foreign capital.
When a foreign entity establishes a subsidiary, it can continue to be successful even after significant management changes within the company. The subsidiary company’s status won’t change overnight.
Operations can be readily carried out once a company is formed in India.
Separate and Unrelated Entity
The company, or Indian subsidiary, exists independently of its foreign parent. Even if there is management authority over the Indian subsidiary, this organization nonetheless has a distinct legal existence from its international parent.
An Indian subsidiary company would be subject to the same limited liability rules as private and public limited businesses. Limited liability denotes that each member’s obligation is capped at a certain sum.
Directors and shareholders would be considered corporate members. In the event that the corporation suffered a loss, the limited liability theory would shield the directors and stockholders. The business would be responsible for any debts owed to third parties despite its limited liability. However, this concept prohibits any third-party creditor from seizing the shareholders’ and directors’ personal assets.
Extent of diversification
A foreign firm that wants to increase its operations in India can do so by forming an Indian subsidiary company. Through this procedure, new markets and goods can be introduced. But before doing so, it’s crucial to conduct careful market research. Through this process, new endeavors can be accomplished.
The business can sign contracts and agreements since it is a distinct legal entity. An individual (whether a natural person or an artificial person) may contract under the 2013 Companies Act. Such an entity has the authority to make contracts and to bring legal actions (suit) against other parties for any type of duty breach.
Buy real estate in India
Any human being or artificial being in India has the ability to buy real estate. Similar to how individuals can purchase properties in India under the appropriate transfer rules. Thus, registering an Indian subsidiary business in India has various advantages.
Organization that regulates Indian subsidiaries
The Ministry of Corporate Affairs is the primary regulating body for the registration of Indian subsidiary companies (MCA). In addition, all issues pertaining to the procedures for incorporating a business would be handled by the Registrar of Companies (ROC). The Reserve Bank of India is another regulatory body that oversees Indian Subsidiary compliance.
Post Registration Compliances
Various compliances must be followed in order to complete the Indian Subsidiary Registration Process.Such an entity shall maintain compliance with the following requirements:
- Companies Act of 2013 – Any company founded in India must abide by the requirements of the Companies Act of 2013.
- Foreign Exchange Management Act of 1999 – A foreign firm planning to open an office in India must abide by the country’s relevant foreign exchange rules.
- The Indian subsidiary company must comply with the relevant RBI Compliances in addition to the Foreign Exchange Management Act.
- All businesses operating in India are required to file income tax returns under the Income Tax Act of 1961.
- In India, the standard corporate tax rate is currently 22%. Therefore, a foreign firm creating an Indian subsidiary company must adhere to the appropriate tax rates.
- Annual ROC and MCA Returns – Companies must also submit annual compliance reports to the Ministry of Corporate Affairs and the Registrar of Companies.
- Securities Exchange Board of India: Compliance with relevant SEBI legislation must be adhered to if an Indian subsidiary business issues its securities in a stock exchange.
- Compliance is required by the SEBI (Listing Obligations and Disclosure Regulations).
- PAN Card
- Aadhaar Card
- Any form of Address Proof
- Passport, Visa if the applicant is a foreign national
- Any identification proof provided by the foreign national must be attested and certified by an India Consulate
- DIN – Directors Identification Number
- Digital Signature Certificate
- Any utility bills of the premises- If the premises is owned by the company
- If the premises are not owned by the company, then the lease agreement has to be produced
- Address Proof of the Registered Office
- Memorandum of Association (MOA) and Articles of Association (AOA) for incorporating the Indian Subsidiary