Foreign legal entities may set up subsidiaries in India and the legislation in this country provides for two types of subsidiaries, depending on the capital owned by the foreign company. Thus, when starting a company in India which is represented by a foreign legal entity, the investors may choose to incorporate a wholly-owned subsidiary or a subsidiary company. Our team of specialists in company formation in India can assist with the legal requirements related to the registration of a subsidiary.
Legal entities under which foreign companies can operate in India
Foreign companies seeking to establish operations in India can set up satellite businesses which dependent or independent from the parent company. These are the branch office, respectively the subsidiary company.
The decision of creating a branch office that is under the total control of the foreign entity, or a subsidiary which is an independent business form, is entirely at the discretion of the parent company.
Company owners are advised to first prospect the Indian market in order to get a clear picture of the most suitable type of legal entity they can use in order to establish one or the other businesses.
The differences between the subsidiary and branch office are several and are quite important and they can be explained by our India company formation officers.
What are the types of subsidiaries in India?
According to the Companies Act 2013, a subsidiary is defined as a company in which aforeign legal entity owns at least 50% of the total share capital. The definition also states that the foreign company has legal rights on the structure of the board of directors of the subsidiary.
As mentioned above, there are two main options when registering a company in India as a subsidiary. Investors may establish a wholly-owned subsidiary, which designates the fact that the parent company owns 100% of the subsidiary’s shares. This option is available only for the business sectors which allow 100% foreign direct investments and our team of agents in company registration in India may provide further assistance on this matter. The other option refers to the subsidiary company, in which the parent company controls at least 50% of the subsidiary’s capital.
The main features of a subsidiary company in India in 2023
Because the subsidiary will take the legal form of a limited liability company as prescribed by the Indian Company Law, it will also be treated as a domestic company. This means that it will be entirely independent of the parent company and will be allowed to complete the same activity as the parent company, but also other activities tailored to the Indian market. This is beneficial for both entities from a profit point of view.
The subsidiary can be set up as a trading company or as a subordinate business of a holding company, a case in which the differences between them are substantial.
When it comes to the aspects to consider about the creation of a subsidiary in India in 2023, the following should also be considered:
- it will be allowed to have its own unique name, therefore, it needs not to bear the parent company’s trading name,
- it will apply for its own business licenses and will have its own statutory documents,
- from a taxation point of view, it will be imposed the corporate tax on its worldwide profits,
- it can engage in any type of activity, as long as the requirements imposed for the respective sector are respected.
For 2023, when opening a subsidiary company in India, the parent company must make sure it respects the laws of this country, however, it will not be liable for the debts and obligations of its subsidiary. Also, it is possible for an overseas entity to create more than one subsidiary.
If you have any questions related to the opening of a subsidiary in comparison to a branch office, our specialists in company registration in India can advise you.
What are the registration requirements for Indian subsidiaries?
Under the Indian legislation, the subsidiary is treated as a separate legal entity. The Indian subsidiary falls under the regulations of the Income Tax Act and benefits from the same provisions applicable to companies registered in India. It is also important to know that India has recently become one of the main business destinations of foreign companies, which generally choose to establish a business through a subsidiary; the other option would be to operate through a branch office.
The subsidiary is generally registered as a private limited company and it is necessary to appoint two directors. The procedure on how to form a company in India, in this case, stipulates that the company’s directors should apply for a Director’s Identification Number. Following specific incorporation steps, such as obtaining the approval for the company’s trading name (issued by the Registrar of Companies), the subsidiary will receive a Certificate of Incorporation. The company’s representatives will need to provide certain documents, which can be detailed by our consultants. Trademark registration can also be a step in the company formation procedure in India if investors want to protect their brand.
What are the main steps for registering a wholly-owned Indian subsidiary in 2023?
One of the main aspects for opening a company in India as a subsidiary refers to the company’s trading name. In the case of a subsidiary, the foreign company’s name has to be included in the local trading name, alongside the word “India” or the name of the Indian city in which the business will set its operations. Other important matters are the following:
- apply for the Digital Signature Certificate for all the directors of the company;
- apply for a Digital Identification Number for all the appointed directors of the Indian subsidiary;
- apply for a suitable company name by providing 3-4 options to be chosen by the Registrar of Companies;
- appoint minimum two directors and minimum two shareholders and comply with the requirements stated by the Reserve Bank of India.
In order to incorporate an Indian subsidiary, the legal entity must be registered with the Registrar of Companies (ROC), by completing a set of forms requested by the institution. This procedure has to be conducted once the ROC has accepted the company’s trading name. Considering that it will represent an Indian legal entity, it will also have the obligation to pay taxes accordingly. This also applies when referring to the VAT.
Thus, the investors will need to submit the following: the Form INC-7 – Application for Incorporation of Company (Other than One Person Company), the Form DIR – 12 – Particulars of Appointment of Directors and Key Managerial Staff and the Form INC – 22 – Notice of the Situation. While filling these documents, the company’s representatives will also have to provide the company’s statutory documents (the articles of association and memorandum).
Documents to prepare when opening a subsidiary in India
The most important set of documents to prepare when setting up a subsidiary in India in 2023 is made of the parent company’s Certificate of Registration and Articles of Association as information of the shareholder, and the future subsidiary’s Articles of Association.
When it comes to the parent company’s statutory documents these must be translated and must be filed as certified copies with the Trade Register in India.
Also, the subsidiary must have its own bank account in India in which the share capital will be deposited. The bank statement will be submitted with the Companies House upon registration.
Another aspect to consider is that the subsidiary must have a registered address in India. For this purpose, a lease or rental contract can be used.
The subsidiary must also obtain a tax identification number and must register for VAT in India.
All documents must be filed with the Trade Register and based on them, the Certificate of Registration will be issued.
Licensing requirements when opening an Indian subsidiary
As mentioned earlier, the subsidiary company must apply for its own licenses and business permits in India. These must be obtained in the authority in the industry or industries it will operate in.
The licensing procedure is perhaps one of the lengthiest processes in the company formation procedure in India, as each regulatory body has its own requirements and specific rules, and approvals can apply.
What business forms can Indian subsidiaries take?
When opening a company in India as a subsidiary, it is necessary to select one of the legal entities that are available for this structure. Investors should know that the subsidiary represents a separate entity from the parent company, in which case it must follow the rules and regulations prescribed by the Indian law.
The subsidiary can take the form of a private limited company or of a public limited company, which are incorporated as stipulated by the Companies Act 2013. Our team of specialists in company formation in India can provide an in-depth presentation on the main characteristics of each one of the two business forms and can assist in the registration with the local institutions.
Under the new Companies Act, a subsidiary in India can also be registered as a limited liability company, but it is important to know that, in practice, the most common way to start a subsidiary is by opening a wholly-owned private limited subsidiary. This option is generally selected by large multinational companies expanding their operations in this country, which is one of the top preferences of foreign businessmen for a wide range of business activities, telecommunications included.
Are there any requirements for foreign businessmen investing in India?
Although foreign businessmen can easily invest in this country, those who are interested in how to form a company in India should consider several aspects prior to starting their business here. This is due to the fact that in certain situations foreign investors (and foreign shareholders) must obtain approval for their investment projects from the local institutions.
Depending on the investment sector that is of interest for foreign businessmen, a prior approval may be needed from the Foreign Investment Promotion Board or from the Reserve Bank of India. Our team of consultants, specialized in any matter concerning the procedure of company formation in India, can offer a detailed presentation on the business sectors that need governmental approval.
The Reserve Bank of India (RBI) needs to provide its approval for the registration of the subsidiary when appointing foreign directors. This is a direct consequence of the fact that the participation at the company’s capital is considered foreign direct investment (FDI) and it is necessary for any newly formed business to obtain the approval from the institution.
Thus, the subsidiary is legally required to submit the Advance Reporting Form with the RBI when receiving funds from the parent company abroad. The procedure must be completed in a period of 30 days since the funds were transferred to the local subsidiary. Another step refers to the issuance of shares, a procedure that should be completed in a period of 180 days since the subsidiary received its funds.
We also invite you to watch a video on the Indian subsidiary:
What are the advantages of opening an Indian subsidiary?
As a foreign entity investing in India, there are several ways of starting a business here, and some of the most common options refer to registering a subsidiary or a branch office. Each business form provides a set of advantages, but in the case of the Indian subsidiary the following will apply:
|independent legal structure||the subsidiary is an independent structure from its parent company and it is regulated under the Indian commercial legislation|
|transfer of shares||the shares owned by a shareholder can be easily transferred to another party, by signing a share transfer form and a share certificate|
|acquire property in India||as the subsidiary is an independent structure, it is allowed to purchase properties here|
|incorporation with foreign direct investments||as mentioned earlier, FDI is widely accepted for Indian subsidiaries and this applies to most of the economic activities that are available in this country|
The creation of an Indian subsidiary company in 2023 has many advantages, among which an easy incorporation process and flexibility in relation to the activities that can be undertaken. Our specialists can offer more information on its registration requirements.
If you need guidance on the 2023 subsidiary company formation in India, do not hesitate to get in touch with us.
Why choose to invest in India
India is one of the largest and most populated countries in the world which makes a very appealing destination for starting a business and finding employees easily.
Other reasons to invest in India are:
- the country has reached an inflow of Foreign Direct Investment (FDI) of 73,45 billion USD between 2019 and 2020,
- by 2036, the population of the country is expected to reach 152 million people from the current 121 million,
- it has the 3rd largest group of scientists and technicians in the world,
- it remains one of the fastest developing economies in the world in 2020.
Foreign businessmen are invited to contact our team of consultants for in-depth assistance on the compulsory registration steps applicable to an Indian subsidiary. Our specialists can also assist with advice on the documents that have to be submitted with the local authorities and may offer assistance on the most suitable type of subsidiary to be registered here.