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Setting up a Wholly-Owned Subsidiary In India by a Foreign Entity

Setting up a Wholly-Owned Subsidiary In India by a Foreign Entity

ACS PADMAJA KALYANI / February 22, 2018 / 2 Comments
INTRODUCTION

A foreign company can carry out business operations in India through the following options while retaining its status as a foreign entity:

1. By incorporating a company under the Companies Act, 2013 as:

  • A. Wholly owned subsidiary
  • B. Joint venture

2. By unincorporated entities as:

  • A. Branch office
  • B. Project office
  • C. Liaison office/Representative office

a.Wholly Owned Subsidiary (WOS)

Foreign companies may set up a wholly owned subsidiary, which is an Indian Company with an independent legal status, distinct from the parent foreign company.
As per the present foreign investment policy, a WOS can be established either under the automatic route, if the conditions specified therein are complied with (specific high priority industries) or approval route, after obtaining an approval from the respective Ministry (Government of India).

b.Joint venture company (JV)

Foreign companies may set up a joint venture company i.e. in collaboration with an Indian company.
Under the current foreign investment policy, a joint venture can be established either under the automatic route, if the conditions specified therein are complied with or obtain an approval from the respective Ministry (Government of India).

Applicable Acts and Regulations:
  • • Companies Act, 2013
  • • Foreign Exchange Management Act, 1999
Applicable Acts and Regulations:
  • • Companies Act, 2013
  • • Foreign Exchange Management Act, 1999
Foreign Company

As per Section 2(42) of Companies Act, 2013 – Foreign company is a company or body corporate incorporated outside India which • has a place of business in India whether by itself or through an agent, physically or through electronic mode; and • conduct any business activity in India in any other manner When a foreign company makes 100 per cent Foreign Direct Investment (FDI) in India through an automatic route, the Indian company becomes the Wholly Owned Subsidiary (WOS) Company of that Foreign Company. A WOS can be formed as a private limited company, limited by shares or guarantee, or a public limited company or an unlimited company.

Pre-requisites for establishment of WOS:
  • 1 100% FDI is permitted (sector specific)
  • 2 No prior approval of Reserve Bank of India is required 3
  • 3 Minimum 2 directors in case of private company and Minimum 3 directors in case of public company – at least one Director must be Indian citizen and the other Directors can be of any nationality
  • 4 Minimum 2 shareholders in case of Private company and Minimum 7 shareholders in case of Public company
Benefits of incorporating a WOS:
  • • A WOS is regulated by Indian Law, Companies Act, 2013
  • • It is treated as domestic company under Income Tax Law and is eligible for all exemptions, deductions benefits as applicable to any other Indian Company
  • • Funding can be made in the form of Share Capital and Loan
  • • Maintenance of effective control over its subsidiaries
  • • Dissemination risk is minimized.
  • • Retention of brand name as the subsidiary can retain its name brand while the parent company has the opportunity to branch out into new markets
Procedure for Incorporating A WOS:
Steps Activity
1 Obtain Director’s Identification No. (DIN) and digital signature certificate (DSC) for the proposed directors
2 File application for name availability of the company in Form INC-1
3 Draft MOA and AOA and subscription to MOA by shareholders and appropriate persons
4 After Registrar of Companies (ROC) approves the name, file SPICe form (INC-32) along with e-MOA (INC-33) and e-AOA (INC-34)
5 Payment of ROC online fees and stamp duty as per the authorized capital of the company
6 The Registrar shall verify all the documents and SPICe Forms
7 After the documents are verified, Certificate of incorporation is given
8 Application for PAN card in the name of the company
9 Opening of bank account in the name of the company
10 Remittance of funds in the bank account by the parent company as subscription money for allotment of shares
11 Reporting of inward remittance by WOS with e-biz portal of RBI within 30 days from the date of receipt of funds
12 The WOS shall facilitate the Authorized Dealer (AD) to obtain KYC information of the foreign company from their counterpart bank
13 RBI upon receipt of the intimation allot Unique Identification Number (UIN) for such remittance and intimates the company
14 The Indian Company shall allot the shares within 60 days of the remittance from the foreign company
15 The Company after allotting the shares shall file form FC-GPR with e-biz portal of RBI, within 30 days of allotment of shares
16 RBI shall take on record Form FCGPR.
Documents required for submission along with the application:
  • 1. Address proof of the office and if accommodation is rented then latest electricity bill.
  • 2. For Indian citizen
    • • PAN card mandatory
    • • Address proof
    • • Photograph ID proof like passport, Aadhar card or driving license
  • 3. For foreign national
    • • Passport mandatory
    • • Address Proof
    • • Identity Proof (Passport, driving license or any government document containing name in full, photo and date of birth)
    • • Documents submitted must be certified by the Indian Consular or consulate.
  • 4. For FC-GPR
    • • PAN of Indian company
    • • Details of foreign company (parent company)
    • • FIRC issued by the Authorized Dealer
    • • KYC of the foreign company issued by the Authorized Dealer
    • • Description of the main business of the Indian Company together with proper NIC Code
    • • Valuation Certificate from the Chartered Accountant in Practice
    • • Declaration by the Authorized Signatory of the Indian Company
    • • Certificate from the Company Secretary

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