How can a foreign company has a fully owned subsidiary in India

How can a foreign company has a fully owned subsidiary in India

 

As defined under section 2 (42) of the Companies Act, 2013, if a company or a body corporate is incorporated or registered outside India, but it has a place of business in India and is doing business in India by itself either by being physically present in India or through electronic means or through agents or it conducts its business activities in India through any other means, then such company is recognized as a foreign company.

Subsidiary Company:

As per Section 2 (87) of the companies Act, It is a company whose composition of Board of Directors is controlled by another company also known as a holding company exercises control over more than fifty percent of total share capital either on its own or together with its own subsidiaries. If a company is a subsidiary of that company. If all or majority of the Boards of Directors can be appointed or removed by a holding company, then such company will be deemed to be controlled by such holding company.

This article is intended to those companies and startups who have registered their companies outside India and want to operate their business in India as well either physically or electronic mode.   Let’s take a look at the procedure of incorporating Wholly Owned Subsidiary Company in India.

Before jumping into the procedure. We would like to describe some basics regarding  Wholly Owned Subsidiary Company. 

What is Wholly Owned Subsidiary Company?

The term “Wholly Owned Subsidiary Company” means, when a company is 100% owned by another company, it is called Wholly Owned Subsidiary of the company who has made 100% investment in it.

 

For an example, there is the ABC company is 100% owned by XYZ company. Here ABC is wholly owned subsidiary of XYZ company.

 

What is WOS by foreign companies in India?

When a company which is incorporated or registered outside of India (i.e foriegn land ), makes 100% Foriegn Direct Investment in India, the Indian Company is said to be wholly owned subsidiary of a foriegn company.

For an example- ABC company is 100% owned by XYZ, registered in the USA. Here ABC is wholly owned subsidiary of XYZ company.

Key Features of wholly Owned Subsidiary Company:

  • Wholly Owned Company is a company which is completely owned by another company.
  • The company that owns the subsidiary of that company is known as parent company or holding company.
  • Wholly Owned Company may be part of the same industry as the parent company or part of an entirely different company.
  • Since the parent company has owned the company, it has a right to appoint the subsidiary boards of directors, which controls the subsidiary.
  • All types of business activities are permitted, such as manufacturing, marketing and service industry.
  • It is treated as a domestic company under Indian Taxation Law and is eligible for all exemptions, deduction benefits, as applicable to any other Indian company.
  • Funding can be made in the form of share capital or loan.

 

Documents Required:

Office address Address proof

 (electricity bill or rent agreement) and latest electricity bill in case of rented accommodation.

Indian National PAN Card (mandatory)

Address proof (electricity bill, telephone bill, bank statement or passbook or rent agreement and latest electricity bill in case of rented accommodation)

 Photo ID Proof (passport, dDriving license, voter ID or Aadhar card)

Foreign National

 Passport (mandatory).

Address Proof (electricity bill, telephone bill, bank statement or passbook or rent agreement and latest electricity bill in case of rented accommodation.

Document must be certified by the Indian Consulate).

Photo ID Proof (Any government license or document containing name in full, photo and date of birth.

Document must be certified by Indian Consulate).

Procedure of Establishing a Wholly Owned Subsidiary Company in India:

Director Identification Number and Digital Signature Certificate:

DIN and Digital Signature Certificate for all the proposed Directors of the Company must be obtained. For obtaining DIN an application in Form No. DIR – 3 should be filed on MCA Portal. DIN application is processed and approved by the Central Government through the office of Regional Director, Ministry of Corporate Affairs. Form No. DIR – 3 must be accompanied by self attested Identity Proof (Copy of Passport is mandatory) and Address Proof (Utility Bills/Family Registers etc) and one recent passport size color photograph of the Applicant. All the documents must be attested by a practicing professional viz. Practicing Company Secretary, Practicing Cost & Management Accountant or by a Practicing Chartered Accountant. In case the ID Proof and Address Proof is not in the English language, then a certified translated copy of the same must be provided. All the above said documents should be notarized and consularized from Indian Embassies in that Country.

Name Approval

Name approval has to be obtained from the Registrar of Companies (“RoC”) by submitting an application  RUN . For this the promoters need to decide various items, which are mentioned in e-Form . The name once approved by the authority is valid for 60 days. The Subscriber to the Memorandum and Articles of Association shall be the applicant for the availability of name application. A certified true copy of Board Resolution of the holding or parent copy, giving no objection for the incorporation of a Wholly Owned Subsidiary in India and authorising any person to sign the application on its behalf should be provided. The certified true copy of the Board resolution should also be notarized and counsularised from the Indian Embassies located in the country, where promoters or the parent company is situated.

Memorandum and Articles of Association

After obtaining name approval, the draft Constitutional Documents of proposed Company i.e. Memorandum of Association (MOA) and Articles of Association (AOA) is to be drafted and then filed with the RoC along with the forms / documents stated below.

Filing of Forms

The following forms are required to be filed with the RoC:

 e-SPICE 32 (Application for Company registration);

 e-SPICE 33 (Memorandum of Association of the Company);

 e-SPICE 34 (Articles of Association);

 Form 49A (An application for allotment of Permanent Account Number (PAN) by the Income     Tax Department to the company after incorporation);

 Form 49B (An application for allotment of Tax Account Number (TAN) by the Income Tax   Department to the company after incorporation);

A PAN undertaking by the promoters;

 A Power of Attorney to be executed by subscribers and proposed directors (authorisation by the promoters of the company to a person/s to carry out appropriate changes as suggested by the RoC in any of the incorporation papers that have been filed).

Clarifications/ additional information required by ROC:

After all incorporation papers are filled and reviewed by the ROC, the ROC may require certain clarifications. These clarifications and enquiries need to be satisfied by the person who has been authorized to do so by the power of attorney filed with the ROC.

Certification of Incorporation:

Once all clarifications are provided, the certificate of incorporation is issued by the ROC and the company is deemed to be incorporated from the date of the certificate of incorporation. At this permanent account number, tax account number is also issued to the company by the income tax department.

Indicative Time Frame:

The entire procedure can be completed on a fast track basis within 20 to 30 days.

Advantages of a fully owned subsidiary in India:

Full Control:

Having a full operational and strategic control over a subsidiary company is a great advantage of holding company.

Greater Cooperation:

The holding and subsidiary companies can use a common financial system, and they can share their administrative and other expenses. This provides them a huge benefit by making things cost effective.

Keeping brand name:

A WOS can keep its brand name with it, and the holding company can have a chance to branch out into new markets.

Limited Liability:

Here, both the companies have limited liabilities. The holding companies doesn’t bear the losses of the subsidiary company in case of losses to the WOS.

Protection of trade secrets:

Both the companies, get protection, and security for their trade secrets, technical knowledge, and expertise as well as a great degree of control over operations.

Conclusion:

It is always better to be aware of regulatory framework before starting a business in India. It is even more important for foreign companies to acquainted with Indian laws, especially when they are planning to have fully owned subsidiary in India as the risk is higher and procedure is complicated as compared to Indian companies. It will be a lot easier if you take the help of legal consultant firm. Here are the professionals will guide you how you can wholly owned subsidiary in India and minimize the obstacles that you may have while incorporating an entity in India. Unilex Business Consultants is one of the fastest- growing companies that sole purpose to help foreign companies to own subsidiary in India effortlessly. So, if you are looking for a renowned legal consultant in India, get in touch with via email or phone number.