How to Establish a Foreign Company’s Subsidiary in India?
Establishing a subsidiary of a foreign company in India involves a streamlined online application process, adhering to the regulations outlined in the Companies Act of 2013. A subsidiary, whether wholly or partially owned, functions under the brand of the parent company while maintaining a distinct legal identity. The primary role of the parent company is to provide substantial financial backing to its subsidiary.
The primary goal for a foreign company entering the Indian market through a subsidiary is to broaden its business reach beyond its home country. To successfully initiate the incorporation of a subsidiary in India, it’s crucial to comprehend its definition, legal prerequisites, and financing channels. If you’re considering launching a subsidiary in India, this blog offers comprehensive insights into the concept, mandatory criteria, a step-by-step procedural guide, and a checklist of documentation necessary for the incorporation process.
What is a Subsidiary Company?
When an existing company establishes a new company in a different location using its own brand name to expand its business, it creates a relationship where the original company is the parent or holding company, and the newly established company is its subsidiary. Despite sharing the same brand, the subsidiary is a distinct legal entity capable of managing its assets, liabilities, and property independently. It is obligated to handle all legal and tax obligations on its own, necessitating the employment of a separate management team for governance and administration.
For those interested in launching a subsidiary in India, a clear understanding of its legal status and responsibilities is crucial for success. To grasp the concept of a subsidiary company better, it’s essential to be acquainted with its various types. There are primarily two types of subsidiary companies: wholly-owned subsidiaries and partially-owned subsidiaries. In a wholly-owned subsidiary, the parent company possesses 100% ownership, while in a partially-owned subsidiary, the parent company holds a majority share of ownership. When the parent company has a significant stake in ownership, it assumes the primary responsibility of providing financial support to the subsidiary when needed. For those contemplating the establishment of a subsidiary company in India, comprehending the distinctions between these types of subsidiaries and their ownership structures is valuable for making well-informed decisions.
Minimum Requirements for Establishing a Subsidiary Company in India
A foreign company looking to establish a presence in India can opt for either a Private Limited or a Public Limited Company as its subsidiary. In this case, the subsidiary would need to adhere to relevant Indian laws. The specific criteria for incorporation vary based on the chosen structure. It’s vital to grasp the distinct requirements for both private and public limited companies to ensure a smooth and successful incorporation process if you’re considering launching a subsidiary in India.
Shareholders:
- For a Private Limited Company subsidiary in India, a minimum of two shareholders is required, while a Public Limited Company needs at least seven.
- Private limited subsidiaries can have up to 200 shareholders, whereas public limited subsidiaries can have an unlimited number.
Parent Company Shares:
- A foreign parent company establishing an Indian subsidiary can wholly own it (100% shares) or partially own it (more than 50% shares).
- If the parent company holds less than 50% of the subsidiary’s shares, it’s not considered a subsidiary.
Directors:
- Private Limited Companies in India require a minimum of two directors, and Public Limited Companies need at least three, with both types capped at a maximum of 15 directors.
Resident Director:
- At least one director in an Indian subsidiary must be a resident of India for more than 120 days in the preceding financial year.
Registered Office:
- An Indian subsidiary must have a physical registered office in India, meeting all legal requirements and obtaining necessary approvals before becoming operational. A post office box or virtual office is not acceptable.
Capital Requirement:
- While there’s no mandated minimum capital for an Indian subsidiary, the parent foreign company must invest capital based on business needs, subject to guidelines by the Reserve Bank of India. The investment, reflected in the subsidiary’s balance sheet, supports operational expenses and must comply with regulatory requirements.
How to Incorporate Subsidiary of a Foreign Company in India?
Step 1: Document Preparation
To establish an Indian subsidiary of a foreign company, the initial step involves gathering essential documents. These typically include the memorandum and articles of association, proof of the registered office address, director identification numbers (DIN) for all directors, digital signature certificates, and a certificate of incorporation from the foreign parent company. Once these documents are ready, the application process can commence online through the Ministry of Corporate Affairs (MCA) portal.
Step 2: Board Resolution and Power of Attorney Drafting
Following document collection, the next step is drafting a resolution for board approval to establish the subsidiary in India. This resolution, once passed at a board meeting, serves as official approval. Additionally, a Power of Attorney must be drafted, authorizing someone in India to file the incorporation application. Assistance with drafting these documents is available if needed.
Step 3: Legalization of Board Resolution
To ensure acceptance in India, the foreign-origin Board Resolution needs legalization. This involves obtaining Consulate attestation, Apostille certification for Hague Convention signatories, or public notary attestation for Commonwealth Group countries. This step is necessary before applying for name reservation.
Step 4: Name Selection and Approval Application
Choosing a name for the subsidiary, which may include adding “India” to the parent company’s name, is followed by applying for name approval. This is done through the Reserve Unique Name (RUN) form or Part A of the SPICe+ form. The Registrar approves the name if it adheres to legal requirements.
Step 5: Document Drafting and Legalization
Once the name is approved, documents like Memorandum of Association, Articles of Association, and Consent of Directors must be drafted according to the Indian Companies Act. Like the Board Resolution, these documents need legalization through consulate attestation or Apostille.
Step 6: Online Application for Incorporation
After preparing and legalizing all documents, the online SPICe+ application for incorporation is submitted. If the name is approved, fill out PART B online, attach digital documents, and submit the application along with the Digital Signature Certificate of the authorized director.
Step 7: Certificate of Incorporation Issuance
Upon submission, the Registrar verifies the documents. If everything complies with the Companies Act, a Certificate of Incorporation is issued, containing the unique Corporate Identification Number (CIN) assigned by the Registrar. Following this, the company must obtain various registrations and licenses and complete necessary formalities to commence operations in India.
Required Documentation for Establishing a Subsidiary of a Foreign Company in India
To establish the Indian subsidiary of a foreign company, you’ll need essential paperwork and legal documentation from the foreign parent company. Additionally, you must provide documents pertaining to the directors or shareholders of the Indian subsidiary, both from India and abroad. Lastly, furnish details about the registered office address of the Indian subsidiary.
For a comprehensive checklist of these documents, please consult the table below.
| S.No. | Category of Documents | List of Documents |
| 1 | Documents of parent foreign company | 1. Certificate of Incorporation 2. Memorandum of Association 3. Articles of Association 4. Proof of Registered Office Address 5. List of all Directors & Shareholders 6. Board Resolution approving the decision to incorporate the Indian Subsidiary 7. Power of Attorney granted to the authorised representative / applicant |
| 2 | Documents of the Foreign Director / Shareholder of the Indian Subsidiary | 1. Coloured Photograph 2. Self-attested copy of Passport 3. Self-attested copy of National ID Card, if available (optional) 4. Proof of Address (any one of the following, must not be older than 2 months) 1. Bank Statement 2. Electricity Bill 3. Water Bill 4. Gas Bill 5. Copy of Business Visa if travelling to India for setting up the Subsidiary company 6. Self-attested copy of PAN card issued by the Indian Income Tax Department. If PAN isn’t available, a No PAN Declaration |
| 3 | Documents of the Indian Director / Shareholder of the Indian Subsidiary | 1. Coloured Photograph 2. Self-attested copy of PAN card 3. Self-attested copy of Aadhar card 4. Proof of Identity (any one of the following) 1. Voter ID 2. Driving License 3. Passport 4. Aadhar 5. Proof of Address (any one of the following, must not be older than 2 months) 1. Bank Statement 2. Electricity Bill 3. Water Bill 4. Gas Bill |
| 4 | Documents of the Registered Office Address of the Indian Subsidiary | 1. Proof of Address (any one of the following, must not be older than 2 months) 1. Property Ownership Papers 2. Electricity Bill 3. Water Bill 4. Gas Bill 2. No Objection Certificate from the owner of the premises in the prescribed format |
Conclusion
If you require additional clarification or have further inquiries regarding the establishment of a subsidiary company, we’ve previously covered the definition, eligibility criteria, and the step-by-step process for creating a foreign company’s subsidiary in India. Should you still have any uncertainties or questions, please don’t hesitate to drop your comments below. Alternatively, you can directly reach out to our team of startup advisors for expert guidance and support at company suggestion . Your queries are welcome, and we’re here to provide the information you need.
