All you need to know about forming a subsidiary company in India

Introduction

India draws a lot of Foreign Direct Investment (FDI) and Private Equity money being one of the nations with the fastest growth rates in the world. India continues to be a desirable location for investment among foreign companies and foreign nationals due to its second-largest population in the world and its abundant talent pool of talented IT workers. This article focuses on things you should know before forming a subsidiary company in India.

What is an Indian Subsidiary?

A company whose interests are owned, or controlled by another company is said to be an Indian Subsidiary. The preference share capital and paid-up equity share capital of the subsidiary company can be used to determine the relationship between the holding company and subsidiary company. Another company may possess it entirely or in part.

India is developing quickly to rank among the most desirable business destinations worldwide. A few measures to represent India as a business-friendly nation include offering investment possibilities, encouraging foreign corporations to work on domestic projects, and implementing pro-business regulations. Foreign businesses can establish subsidiaries in India and benefit from its favorable rules and regulations. By taking advantage of India’s vast market size and the large population, the firms can build a variety of subsidiaries and launch investment opportunities.

Things you should know before forming subsidiary company in India

1. Types of subsidiaries in India: In India, there are primarily two types of subsidiaries:

• • Wholly-owned – In a wholly-owned subsidiary, the parent business owns all of the stock in the subsidiary. However, wholly-owned subsidiaries can only be established in industries that permit 100% Foreign Direct Investments (FDI).
  • Subsidiary Company – Parent firm controls more than 50% of the shares of the subsidiary.

It’s important to get approval from the Reserve Bank of India, before establishing a subsidiary in India.

2. Characteristics of Indian Subsidiary Companies:

• • The repatriation of dividend does not require prior clearance
  • Indian subsidiary adhere to the Indian transfer pricing structure.
  • Dividend distribution tax is nil, according to the Union Budget.

3. Advantages to register as an Indian Subsidiary:

Below are the advantages of forming a subsidiary company in India-:

• An Indian Subsidiary company enjoys the benefit of Separate Legal Identity in the eyes of law.
• Indian subsidiary have a Management structure of its own, different from the parent company.
• Shareholders or the owners of a Company have a limited liability towards the company.
• In case of Indian Subsidiary, FDI is allowed 100% without any prior permission However it requires posts facto filing/intimation to the Reserve Bank of India.
• Parent company can provide a continuous inflow of funds by subscribing to new shares of subsidiary company and thus save it from cost of debt.
• In terms of taxation as well, the Indian subsidiary will have the same tax structure as a domestic company in India.

4. Documents required for Business registration as an Indian Subsidiary:

Below are the documents required for business registration as an Indian Subsidiary-:

• Photograph of all the Directors and Shareholders.
• Apostille ID Proof of all the Directors (Passport, Driving License or Voter ID).
• Electricity Bill or any other utility bill for the address proof of the Registered Office.
• PAN Card of all the Indian Directors and Shareholders.
• A company must have a registered office in India.
• Bank Statement or electricity bill shall not be older than 2 months.
• The utility bill as address proof shall be submitted to ROC.
• Also, an NOC from the Landlord to use the office as a registered office of a company must be submitted.

5. Importance of forming an Indian Subsidiary:

• Indian subsidiary companies are permitted to purchase real estate in India because they are regarded as autonomous structures.
• India’s economy has grown to be the seventh-largest in the world and is on track to overtake China as the third-largest economy in the world.
• India has a young, productive population, making it simple to buildup a sizable customer base.
• The shareholders’ limited liability toward the company is the key benefit of a foreign company’s Indian subsidiary.
• Depending on the needs of the applicant, a subsidiary company in India maybe either a Private Limited Company or a Public Company.

Conclusion

It’s challenging to establish a subsidiary in India. Your firm must find the resources like time and money to grow, while also becoming familiar with all applicable Indian laws. Another level of complexity is added by the fact that state and regional laws and regulations differ. Creating a subsidiary in India has many benefits as well. Subsidiary has limited responsibility from the main firm, and shareholders are limited by the amount they invest. The parent firm is safeguarded by this arrangement against any losses or prospective legal action. You can decide whether the subsidiary has a separate culture or set of workplace policies from the parent firm.