Foreign investment into India is at an all-time high and is pegged to grow even higher with regulatory reforms and an investor friendly climate. In this context, we look at the process and procedure for a NRI or Foreign National or Foreign Company to invest or start, manage and grow a business in India.
This article is intended for those companies or startups that have registered their companies outside India and want to operate in India as part of a foreign company. A company can be registered as private limited or public limited. A private limited company is a closely held company and enjoys the privileges given by the Companies Act, 2013. A public limited company is a company where public is interested and it is required to comply with lot of rules and regulations framed by the Companies Act, 2013. Generally foreign Companies incorporate Private limited Company in India.
Foreign companies can set up wholly-owned subsidiary in sectors where 100% foreign direct investment is permitted under the FDI policy. The wholly-owned subsidiary may be either of the following business entities:
- Private Limited Company
- Public Limited Company
- Unlimited Company
- Sole Proprietorship
Foreign Companies can also set up their operations in India through the business entities:
- Liaison Office/Representative Office
- Project Office
- Branch Office
What is 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
Simple definition give understanding that even a company incorporated outside India, has simple electronic present, which may be used for business in India is a foreign company
As Per Section 379
Where not less than 50% (fifty percent) of the paid-up share capital, whether equity or preference or partly equity and partly preference, of a foreign company is held by
- one or more citizens of India or
- by one or more companies or bodies corporate incorporated in India, or
- by one or more citizens of India and one or more companies or bodies corporate incorporated in India,
Whether singly or in the aggregate,
Such company shall comply with the provisions of Chapter- XII and such other provisions of this Act as may be prescribed with regard to the business carried on by it in India as if it were a company incorporated in India.
WHAT IS WHOLLY OWNED SUBSIDIARY COMPANY?
A Wholly Owned Subsidiary company is an entity of which 100 per cent shares are held by another company. For example, if ABC Pvt. Ltd. owns 100 per cent shares of XYZ Pvt. Ltd. Then XYZ Pvt. Ltd. becomes a wholly owned subsidiary company of ABC Pvt. Ltd.
WHAT IS WHOLLY OWNED SUBSIDIARY COMPANY IN INDIA BY FOREIGN COMPANY?
When a foreign company makes 100 per cent FDI (Foreign Direct Investment) in India through an automatic route, the Indian company becomes the Wholly Owned Subsidiary Company of that Foreign Company. Let’s say ABC Inc. USA owns 100 per cent shares in XYZ Pvt. Ltd. Then XYZ Pvt. Ltd. becomes the Subsidiary Company.
This is possible where 100 per cent FDI is permitted and no prior approval of Reserve Bank of India is required.
A WOS can be defined as an entity whose entire share capital is held by foreign corporate bodies. A WOS can be formed as a private, limited by shares or guarantee, or an unlimited liability company. Considering the various exemptions available to a private company limited by shares (a “private company”) under India’s Companies Act, 2013 (the “Act”), it is recommended that a WOS be established as a private company.
Key features of WOS:
- Wholly own Subsidiary is regulated by Indian Law; Companies Act, 2013.
- Where 100% FDI is permitted no prior approval of Reserve Bank of India (RBI) is needed.
- 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.
- Two directors are required to apply for DSC (Digital Signature Certificate).
- All the directors are required to apply for DIN (Director’s Identification No.).
- Applicant is required to apply for name of the company in Form INC-1.
- After obtaining name approval from ROC, an applicant is required to file form INC-7 (Application for Incorporation of Company (Other than OPC)), form DIR-12 (Particulars of appointment of directors and the key managerial personnel and the changes among them) and form INC-22 (Notice of situation or change of address of the registered office of the company) along with Memorandum and Articles of Association of the Company.
- After filing of the incorporation documents, you are required to pay online ROC fees and Stamp duty. (This is based on the authorized capital of the company).
- After the payment of ROC fees and Stamp Duty, ROC verifies the filed documents. Form INC-22 and DIR-12 are approved through the Straight Through Process (STP) and verifies form INC-7 in detail. ROC may suggest some changes in the form or attachment. We will have to make changes accordingly.
- Once ROC is satisfied, Certificate of Incorporation is sent through email.
- Address proof (electricity bill or rent agreement) and latest electricity bill in case of rented accommodation.
- 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)
- 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).