Incorporating a subsidiary of a foreign company in India is a fully online and application-based process. As with any other company, an Indian subsidiary is regulated by relevant provisions of the Companies Act, 2013. If you are interested in starting a subsidiary company in India, this blog provides complete information on the meaning of a subsidiary company, minimum requirements, a stepwise process, and a list of documentation required for the incorporation process.
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A subsidiary company is one that is either wholly or partially owned by another company, and operates under the same brand as the holding company. However, it maintains its own separate identity for all legal and compliance purposes. The holding company’s primary role in its subsidiary’s operations is to provide majority funding support. The main objective of a foreign company opening an Indian subsidiary is to expand its business beyond its country of origin’s borders. If you’re interested in starting a subsidiary company in India, understanding its meaning, legal requirements, and funding sources are essential for success.
What is a Subsidiary Company?
When an operational company establishes another company under its own brand name, with the aim of expanding its business in a different location, it is referred to as a holding or parent company, and the established company is its subsidiary. Despite carrying the same brand name as the parent company, the subsidiary is incorporated and operates as a separate legal entity. This means that it can hold assets, accumulate liabilities, and acquire property in its own name. Additionally, it is solely responsible for fulfilling all legal and tax compliances, and must hire a separate management for its governance and administration. If you’re interested in starting a subsidiary company in India, understanding its legal status and responsibilities is crucial to its success.
To gain a clearer understanding of the meaning of a subsidiary company, it’s important to familiarize yourself with its different types. There are two main types of subsidiary companies: wholly-owned subsidiaries and partially-owned subsidiaries. In a wholly-owned subsidiary, the parent company has 100% ownership, whereas in a partially-owned subsidiary, the parent company holds a majority share of ownership. With a significant stake in the ownership, the parent company becomes primarily responsible for providing funding support to its subsidiary when required. If you’re considering starting a subsidiary company in India, understanding the different types of subsidiaries and their ownership structures can help you make informed decisions.
Minimum Requirements for Starting a Subsidiary Company in India
A foreign company can establish an Indian subsidiary as either a Private Limited or a Public Limited Company. As a result, the subsidiary company will be subject to applicable Indian laws. The minimum requirements for incorporation will vary depending on the chosen structure. It’s essential to understand each requirement to ensure a successful incorporation process. If you’re interested in starting a subsidiary company in India, it’s crucial to know the minimum requirements for both private and public limited companies.
- Number of Shareholders: If you’re establishing a subsidiary as a Private Limited Company, it must have at least two shareholders. However, if it’s being set up as a Public Limited Company, the minimum number of shareholders increases to seven. Private limited companies can have up to 200 shareholders, while public limited companies can have an unlimited number of shareholders. Understanding the minimum and maximum shareholder requirements for each type of company is crucial when establishing an Indian subsidiary company.
- Maximum shares held by the parent foreign company: When establishing an Indian subsidiary, the foreign parent company can either wholly own or partially own the subsidiary. If the parent company owns all 100% of the subsidiary’s shares, it’s a wholly owned subsidiary. However, if the parent company owns more than 50% of the subsidiary’s shares, it’s a partially owned subsidiary. It’s important to note that a company is not considered a subsidiary if the parent company holds less than 50% of the subsidiary’s shares. Understanding the difference between wholly owned and partially owned subsidiaries can help you choose the appropriate structure for your Indian subsidiary company.
- Number of Directors: Establishing a Private Limited Company requires a minimum of two directors, while a Public Limited Company must have at least three directors on board. Both types of companies can have a maximum of 15 directors. Ensuring compliance with the minimum and maximum director requirements is essential when registering an Indian subsidiary.
- One Resident Director: Directors in an Indian subsidiary can be of Indian or foreign origin. However, at least one of the directors appointed in the subsidiary company must be a resident of India for more than 120 days in the preceding financial year. Ensuring compliance with this requirement is essential when appointing directors in the Indian subsidiary company.
- Registered Office in India: Under Indian company law, a subsidiary company of a foreign entity must have a registered office in India to operate legally. The registered office is the official address of the company, where all legal and official communications related to the company are sent. The location of the registered office will determine the jurisdiction of courts and government agencies over the company. This address must be a physical location and cannot be a post office box or a virtual office. It is also necessary to obtain the necessary approvals and registrations from the concerned authorities before the office can be operational. Failure to comply with these requirements can lead to penalties and legal issues in the future. Therefore, before starting the process of setting up an Indian subsidiary, it is essential to identify a suitable registered office address in India and complete all the necessary legal and regulatory formalities to ensure compliance with Indian laws.
- Capital Requirement: While there is no minimum capital requirement prescribed by the Indian law for establishing an Indian Subsidiary, it is important to note that the parent foreign company must be willing to invest some amount of capital in the subsidiary to ensure its smooth functioning. The capital investment will depend on the nature of the business, its size, scope, and projected expenses, as well as the market conditions in India. The investment can be made in the form of equity shares or debt, depending on the mutual agreement between the parent and subsidiary companies. The capital invested by the parent company will be reflected in the balance sheet of the subsidiary and can be used for various operational and business-related expenses, such as infrastructure development, technology upgrades, hiring employees, marketing and promotional activities, and other such expenses. It is important to note that the capital infusion must be made as per the guidelines prescribed by the Reserve Bank of India (RBI) for foreign investment in India, and all the necessary documentation must be submitted to the concerned authorities for compliance and regulatory purposes.
How to Incorporate Subsidiary of a Foreign Company in India?
To incorporate an Indian Subsidiary of a foreign company, the Registrar of Companies in India needs to be approached. The process is entirely online, and involves filing an application with all the required documents in digital format. For a comprehensive understanding of the process, please follow the steps provided below.
Step 1: Documentation:
The necessary documents required for incorporating an Indian subsidiary of a foreign company may vary depending on the type of company being formed. However, some of the commonly required documents include the memorandum of association and articles of association, proof of registered office address, director identification number (DIN) for all directors, digital signature certificates, and a certificate of incorporation from the foreign parent company.
Once all the required documents are in place, the application process for incorporating the subsidiary can begin. This is typically done online through the Ministry of Corporate Affairs (MCA) portal, and involves filling out the necessary forms and providing the required documents in their correct formats.
It is important to note that the process of incorporating an Indian subsidiary can take some time, and may involve multiple rounds of documentation and review by the Registrar of Companies. Once the subsidiary is successfully incorporated, it will be issued a certificate of incorporation and can begin its operations in India.
Step 2: Draft Board Resolution and Power of Attorney:
Once you have gathered all the required documents, the next step is to draft a resolution seeking approval from the Board of Directors to establish and incorporate a subsidiary company in India. This resolution should be presented at the next board meeting and, once passed, it will serve as conclusive evidence that the company has officially approved the incorporation of its subsidiary in India. Additionally, the foreign company will need to draft a Power of Attorney authorizing a person in India to file the application for incorporation of its subsidiary. If you need assistance with drafting these documents, we have expertise in this area and can provide guidance as needed.
Step 3: Legalise Board Resolution for Name approval
To ensure that the Board Resolution, which is a document originating and executed in a foreign country, is accepted in India, it needs to be legalized. This can be done by obtaining Consulate attestation from the Indian Embassy located in the relevant foreign country. In case the foreign country is a signatory to the Hague Convention, the attestation can also be obtained from the Indian Apostille Office. For countries belonging to the Commonwealth Group, attestation can be obtained from the office of the public notary. Legalization of the Board Resolution is a necessary step before applying for name reservation of the subsidiary company in India.
Step 4: Select name and apply for approval
A subsidiary company in India has the option to use the same name as its parent company by simply adding the word “India” in between. For example, if the name of the foreign parent company is XYZ Pvt Ltd, the Indian subsidiary can be named as “XYZ India Pvt Ltd”. However, there are no restrictions on having a different name. In case the parent company has a trademark registered in its name, the subsidiary company can use the same provided the parent company issues a No Objection Certificate (NOC) for this purpose.
To reserve the chosen name, the authorized representative can file an application for approval with the Registrar at the Central Registration Center. This can be done using the RUN (Reserve Unique Name) form or Part A of the SPICe+ form for company incorporation. In each of these applications, two names can be proposed, along with a legalized copy of the Board Resolution and an NOC by the parent company if its registered trademarks are used in the name of the subsidiary company. The Registrar will approve the application if the proposed name is legally valid, and will reserve it for the subsidiary company.
Step 5: Legalisation of Drafts & Documents for incorporation:
Once the name of the subsidiary company has been approved and reserved, the next step is to draft and prepare the necessary documents for incorporation. These documents include the Memorandum of Association, Articles of Association, and Consent of Directors in DIR-2, among others. These documents must be carefully drafted and tailored to the requirements of the Indian Companies Act, 2013.
It is important to note that, like the Board Resolution, these documents will also have to be legalized in the exact same way before filing the application for name approval. This means that if the documents were originated and executed in a foreign country, they will need to be attested by the Indian Embassy located in that country or obtain an apostille if the country is part of the Hague Convention. It is recommended to seek the assistance of a professional firm experienced in company incorporation in India, like setindiabiz to ensure that all the necessary documents are properly prepared and legalized. This will help to avoid any delays or issues in the incorporation process.
Step 6: File application for Incorporation:
Once you have completed the process of drafting and legalizing all the necessary documents, you can proceed to file the online SPICe+ application for incorporation. In case the name of the subsidiary company has already been approved, you can directly fill out PART B of the SPICe+ form online. You do not need to download the application form. Once you have filled out all the required details, you can upload all the necessary documents in their digital formats and attach the DSC (Digital Signature Certificate) of the authorized director. Pay the prescribed government fee and submit the application online to the ROC.
Step 7: Issuance of Certificate of Incorporation and CIN:
Once the application is submitted, the Registrar of Companies will verify and scrutinize all the documents submitted. If everything is found to be in compliance with the Companies Act, the Registrar will issue the Certificate of Incorporation for the subsidiary company. This certificate will contain the Corporate Identification Number (CIN) of the company, which is a unique identity number assigned to the company by the Registrar of Companies.
After the Certificate of Incorporation is received, the company must obtain the necessary registrations and licenses from various authorities, such as the Permanent Account Number (PAN), Goods and Services Tax (GST), Employees’ Provident Fund (EPF) and so on. The company must also open a bank account in the name of the subsidiary company and complete other formalities to start its operations in India.
Documents Required for Incorporation of Foreign Company Subsidiary in India
To incorporate the Indian Subsidiary of a foreign company, you will require the basic documents and legal drafts of the parent foreign company, the documents of the directors or shareholders of the Indian subsidiary, both Indian and foreign, and finally the registered office address of the Indian Subsidiary. For a complete list of all these documents, you can refer to the table below.
| S.No. | Category of Documents | List of Documents |
|---|---|---|
| 1 | Documents of parent foreign company |
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| 2 | Documents of the Foreign Director / Shareholder of the Indian Subsidiary |
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| 3 | Documents of the Indian Director / Shareholder of the Indian Subsidiary |
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| 4 | Documents of the Registered Office Address of the Indian Subsidiary |
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Conclusion
To give you a distinct clarity on how to set up a subsidiary company, we have already discussed the meaning of subsidiary company, the eligibility of subsidiary company, and the detailed procedure for setting up a subsidiary of a foreign company in India. However, if you still have any further doubts and queries, or are seeking any clarification or additional information on the subject, feel free to ask us in the comments, or contact our startup advisors directly for expert guidance and assistance.
