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Expanding your business by establishing a subsidiary in India offers vast opportunities in one of the world's largest and most dynamic markets. At Taxhint Advisors, we specialize in providing comprehensive and tailored services to help you set up a foreign subsidiary in India. Our expert team assists with navigating the legal framework, obtaining regulatory approvals, and ensuring full compliance with all documentation and formalities. Partner with us to unlock India's immense business potential and drive your company's growth and success.
A subsidiary company, also known as a sister company, is controlled by a parent company or holding company, which holds significant or full ownership. The parent company exercises direct control over the subsidiary's operations and decision-making.
In India, the process for registering a foreign subsidiary is governed by the Companies Act, 2013. Under this law, a subsidiary is defined as a company in which a parent company, or a foreign corporation, holds at least 50% of the share capital. This gives the parent company considerable control and influence over the subsidiary's governance and activities.
In India, there are two primary categories of subsidiaries:
A wholly-owned subsidiary is one in which the parent business owns all of the shares of the subsidiary. It's crucial to remember, nonetheless, that wholly-owned subsidiaries are limited to establishment in industries that accept 100% of foreign direct investment (FDI).
In this type of subsidiary, 50% of the shares are owned by the parent business.
A necessary prerequisite to setting up a foreign subsidiary firm in India is getting the Reserve Bank of India's approval. This regulatory action protects the interests of all parties concerned and guarantees adherence to the nation's foreign investment laws.
The establishment of a foreign subsidiary in India has a number of strong advantages.
Due to its highly competitive climate, India is a popular destination for foreign entrepreneurs looking to create their subsidiary enterprises.
Foreign direct investment (FDI) refers to the purchase or subscription of shares by foreign corporations in private Indian enterprises. Due to a rule the Indian government implemented in 2020 mandating prior approval for investments from nations bordering India, overseas investors are finding Indian subsidiary registration to be a compelling choice.
Perpetual succession is a notion that guarantees a company's survival in the face of various circumstances, such as insolvency, membership transfers, or changes in management. The business keeps running well, offering continuity and stability.
One important benefit that makes people choose company formation over other business forms is limited liability. This principle safeguards the personal assets of directors and shareholders and applies to Indian subsidiaries as well. The business protects the personal assets of its stakeholders by taking responsibility for its debts to other parties.
An effective way for international companies to grow is by creating an Indian subsidiary company. This promotes healthy competition and adds to the expansion and development of the Indian economy by introducing a wide range of goods and services.
A company is recognised as a separate legal entity from its shareholders and directors under the Companies Act. The corporation can enter into agreements with other competent bodies as an artificial legal entity thanks to this legal position. In addition, it gives the business the authority to file lawsuits and address accusations in court under its own name, independent of its directors or members.
As a legal entity, a subsidiary company is authorised to buy or rent properties in India for its commercial purposes. It is desirable to purchase properties in the name of the company itself in order to avoid potential conflicts among its members, in accordance with the idea of eternal succession.
The laws governing business registration and compliance are established and enforced by the Ministry of Corporate Affairs (MCA). The processes involved in incorporating a company are managed by Registrar of Companies (ROC) offices, which make sure businesses comply with legal requirements. In order to ensure compliance with financial regulations, the Reserve Bank of India (RBI) oversees the foreign currency exchange elements for foreign subsidiaries operating in India.
The business name must be distinct and not resemble existing companies or trademarks. Conduct a name availability search to ensure compliance.
The parent company can retain full ownership, or two foreign nationals can be shareholders. An Indian resident as a shareholder is not required. However, having an Indian resident as a director is mandatory.
There is no minimum capital requirement mandated for registering a company in India, allowing flexibility in initial investments.
At least two directors are necessary, with one being an Indian resident. If you lack a resident director, nominee director services can be arranged.
A registered office address must be maintained, which can be fulfilled by utilizing virtual office services for compliance.
Companies are required to conduct at least one general meeting each year and hold two board meetings to ensure effective governance.
Filing three secretarial returns annually is mandatory, overseen by a company secretary. Additionally, a statutory auditor must be appointed, with services from professional firms like IndiaFilings available for assistance.
Specific compliance mandates include mandatory statutory audits for all companies, regardless of size. A foreign subsidiary must appoint a statutory auditor and file annual reports, ensuring adherence to local regulations.
Understanding and adhering to these requirements is vital for the successful establishment and operation of a company in India under the Companies Act, 2013.