Under section 2(46) of the Companies Act, 2013, a holding company is an entity which controls more than 50% stake in another company. Hence, if there is control over the management of another company, the former company is known as a holding company.
Indian Subsidiary Company has been defined under the Companies Act, 2013. An Indian subsidiary company can be understood as a company which is controlled by a foreign company. Hence the foreign company will own more than 50% of the paid-up share capital of the Indian subsidiary.
Overview of the Registration of Indian Subsidiary Companies
Due to expanding opportunities, foreign investors are drawn to invest in India. As a result, there is an increase in foreign investment in India across all sectors. The surge in foreign direct investment into India has led to a boom in the Indian economy ever since Economic Liberalization took place in 1991.
The Foreign Exchange Regulation Act was repealed by the government when the Foreign Exchange Management Act (FEMA) was introduced in 1999. (FERA). With the help of FEMA, investing in India became simpler. For the creation and registration of Indian Subsidiary Companies, the Reserve Bank of India (RBI) issues certain regulations.
Changes in India’s FDI policy that went into effect in April 2020 have drastically changed the quantity of foreign investment. According to this legislation, foreign investors must obtain government authorization before making investments in India. India has territorial boundaries with seven other nations. Prior to this change, investing in India was simple and required fewer processes.
Advantages of Indian Subsidiary Company Registration
- Separate and Unrelated Entity: The company, or Indian subsidiary, exists independently of its foreign parent. Even if there is management authority over the Indian subsidiary, this organization nonetheless has a distinct legal existence from its international parent.
- Perpetual Succession: When a foreign entity establishes a subsidiary, it can continue to be successful even after significant management changes within the company. The subsidiary company’s status won’t change overnight. Operations can be readily carried out once a company is formed in India.
- Limited Liability: An Indian subsidiary company would be subject to the same limited liability rules as private and public limited businesses. Limited liability denotes that each member’s obligation is capped at a certain sum. Directors and shareholders would be considered corporate members. In the event that the corporation suffered a loss, the limited liability theory would shield the directors and stockholders. The business would be responsible for any debts owed to third parties despite its limited liability. However, this concept prohibits any third-party creditor from seizing the shareholders’ and directors’ personal assets.
- Foreign Direct Investment in India (FDI): A foreign corporation making a direct or indirect investment in a private limited company is said to be making a foreign direct investment. Shares of an Indian private limited company are purchased or subscribed for by the foreign corporation. But the government has altered the conditions for FDI in India. If an investment is coming from a nation that has land bordering India, prior government clearance will be necessary. The registration of the Indian subsidiary firm would, however, bring in a lot of foreign capital.
- Buy real estate in India: Any human being or artificial being in India has the ability to buy real estate. Similar to how individuals can purchase properties in India under the appropriate transfer rules. Thus, registering an Indian subsidiary business in India has various advantages.
- Can Sue: The business can sign contracts and agreements since it is a distinct legal entity. An individual (whether a natural person or an artificial person) may contract under the 2013 Companies Act. Such an entity has the authority to make contracts and to bring legal actions (suit) against other parties for any type of duty breach.
- The extent of diversification: A foreign firm that wants to increase its operations in India can do so by forming an Indian subsidiary company. Through this procedure, new markets and goods can be introduced. But before doing so, it’s crucial to conduct careful market research. Through this process, new endeavors can be accomplished.
Regulatory Body for Indian Subsidiary Company
The primary regulatory authority for Indian Subsidiary company registration is the Ministry of Corporate Affairs (MCA). Apart from this, the Registrar of Companies (ROC) would handle all matters relating to company incorporation procedures. Another regulatory authority which manages Indian Subsidiary compliance is the Reserve Bank of India.
What are the compliances related to Indian Subsidiary Registration?
There are different compliances that have to mandatorily adhere to in the Indian Subsidiary Registration Process. The following compliances have to be regularly followed by such entity:
- Companies Act, 2013- Any company which is formed in India would have to comply with compliances under the Companies Act, 2013.
- Foreign Exchange Management Act, 1999- A foreign company that is planning to establish in India has to comply with respective foreign exchange laws in India.
- RBI Compliance- With compliance under the Foreign Exchange Management Act, the Indian Subsidiary company has to also comply under respective RBI Compliances.
- Income Tax Act, 1961- All companies that are present in India have to file Income Tax Returns. The current corporate tax rate prevalent in India is 22%. Hence a foreign company that establishes an Indian subsidiary company has to comply with respective tax rates.
- Annual Returns for ROC and MCA- Companies also have to file annual compliance with the Registrar of companies and the Ministry of Corporate Affairs.
- Securities Exchange Board of India- If an Indian subsidiary company lists its securities in a stock exchange, then compliance has to be followed under respective SEBI laws. Under the SEBI (Listing Obligations and Disclosure Regulations) compliance has to be maintained.
Procedure for Indian Subsidiary Registration
- Think of a Name for the Indian Subsidiary: Companies that are incorporated in India may register with the Ministry of Corporate Affairs (MCA) in accordance with its regulations. The SPICe+ form’s requirements must be followed while forming a subsidiary. Throughout this procedure, the business must think of a distinctive name. After giving the name some thought, it must be reserved for a predetermined amount of time. The firm name must be distinctive and not infringe upon Indian law’s regulations governing intellectual property.
- Apply for a director identification number and a certificate of digital signature: The regulatory authority issues the DIN for the appointment of directors. In addition, the entity must submit an application for a digital signature certificate. The DSC will support business electronic signing procedures. Through the network of digital interfaces, documents can be transmitted and electronically signed.
- Request a PAN and TAN number: The subsidiary firm must submit an application for PAN and TAN after submitting DSC and DIN applications. This is a requirement that must be filed in accordance with a company’s specifications.
- A bank account should be opened for the subsidiary: A bank account must be opened by an Indian subsidiary company. For carrying out various transactions on behalf of the subsidiary, this is necessary.
- GST Number: After this, the company will be given a GST (Goods and Services Tax) number. This number is relevant while performing certain services. It is a requirement for all businesses with Indian headquarters to register for GST.
- Start the process: The business can begin operating once the aforementioned process is finished.
Documents for Indian Subsidiary Company Registration:
- PAN Card
- Aadhaar Card
- Any form of Address Proof
- Passport, Visa if the applicant is a foreign national
- Any identification proof provided by the foreign national must be attested and certified by an India Consulate
- DIN – Directors Identification Number
- Digital Signature Certificate
- Any utility bills of the premises- If the premises is owned by the company
- If the premises are not owned by the company, then the lease agreement has to be produced
- Address Proof of the Registered Office
- Memorandum of Association (MOA) and Articles of Association (AOA) for incorporating the Indian Subsidiary
- Certificate of Incorporation