Subsidiary Of Foreign Incorporated Company

Introduction

Foreign companies seeking to establish a business presence in India often choose to incorporate a Wholly Owned Subsidiary (WOS) or a Subsidiary Company under the Companies Act, 2013. This structure provides the foreign parent company with full or partial control over an Indian entity, while ensuring compliance with Indian corporate, tax, and foreign exchange laws.

An Indian subsidiary operates as a domestic company, with its own legal identity, but is controlled (either wholly or partly) by a foreign body corporate.

Subsidiary Of Foreign Incorporated Company

Legal Framework

The incorporation and operation of an Indian subsidiary of a foreign company are governed by:

Companies Act, 2013

Companies (Incorporation) Rules, 2014

Foreign Exchange Management Act (FEMA), 1999

Reserve Bank of India (RBI) guidelines

Income Tax Act, 1961, and

Other applicable laws depending on the business sector

Types of Subsidiaries

Wholly Owned Subsidiary (WOS)

A company in which 100% of the shareholding is held by a foreign company.

Subsidiary Company

A company in which more than 50% of the shareholding is held by a foreign company, or the composition of the Board is controlled.

Eligibility for Incorporation

  • The foreign parent company must be a legal entity incorporated outside India.
  • The proposed Indian company must have at least two directors, with at least one director resident in India.
  • The company must comply with the FDI policy issued by the Department for Promotion of Industry and Internal Trade (DPIIT).
  • In sectors under the government route, prior approval from the relevant ministry is mandatory.

Documents Required

  • From the Foreign Parent Company:
  • Certificate of Incorporation
  • Memorandum and Articles of Association
  • Board resolution approving incorporation of subsidiary
  • KYC documents of authorized signatory (passport, address proof)
  • Notarized and apostilled documents (as applicable)
  • From Proposed Directors and Shareholders (Indian and foreign):
  • PAN card (for Indian nationals)
  • Identity proof (passport, voter ID, etc.)
  • Address proof (utility bill or bank statement)
  • Digital Signature Certificate (DSC)

The incorporation of a subsidiary in India is carried out through the SPICe+ (Simplified Proforma for Incorporating Company Electronically Plus) form on the MCA portal.

Steps Involved:

  • Digital Signature Certificate (DSC): For proposed directors
  • Director Identification Number (DIN): To be obtained via SPICe+
  • Name Reservation: Via SPICe+ Part A (name must comply with the naming guidelines)
  • Filing of SPICe+ Part B, along with linked forms:
  • e-MoA (INC-33) and e-AoA (INC-34)
  • AGILE-PRO-S (PAN, TAN, GST, EPFO, ESIC, Bank account)
  • INC-9 (declaration by directors/subscribers)
  • Certificate of Incorporation (CoI) is issued by the Registrar of Companies (RoC) along with PAN and TAN

Once incorporated, the subsidiary must undertake the following:

  • Allotment of shares and issuance of share certificates
  • Filing of Form FC-GPR with the Reserve Bank of India (RBI) within 30 days of share allotment under FEMA
  • Appointment of statutory auditor within 30 days
  • Opening of bank account in India
  • Maintenance of statutory registers and records
  • Holding of board meetings and annual general meetings as required
  • Filing of annual financial statements and annual return with RoC
  • Compliance with income tax, GST, and other regulatory requirements

  • Separate legal entity with independent operations in India
  • Limited liability for shareholders
  • Eligibility to access local markets, customers, and contracts
  • Easier repatriation of profits (subject to applicable laws)
  • No minimum capital requirement (except in regulated sectors)
  • Ability to hire local employees and establish a physical presence
  • Regulatory Considerations
  • Foreign Direct Investment (FDI) is subject to sectoral caps and entry routes (automatic or government approval)
  • Compliance with transfer pricing rules for transactions between parent and subsidiary
  • Ongoing reporting to RBI under FEMA for capital inflows
  • Labour laws, environmental regulations, and sectoral licenses may apply based on business activity

Conclusion

Incorporating a subsidiary company in India offers foreign businesses a well-regulated structure to establish a long-term presence in the Indian market. The process requires compliance with corporate, foreign exchange, and tax laws, making professional guidance essential to ensure statutory adherence and smooth operations.

Stakeholders are advised to refer to the Companies Act, 2013, FEMA Regulations, RBI guidelines, and the FDI policy issued by DPIIT for complete legal compliance.