A complete guide on “Why setting up an Indian Subsidiary is not as difficult as you think”

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 Why setting up an Indian Subsidiary is not as difficult as you think. Additionally, in this article information such as What is an Indian Subsidiary? Importance of S an Indian Subsidiary, and Documents required for establishing an Indian Subsidiary is mentioned.

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 corporation may possess it entirely or in part. It is important to note that the term “parent company” or “holding company” refers to the entity that owns the subsidiary. In contrast, a holding company is a little different from a parent firm.

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 build-up a sizeable 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 company or a public firm.

Eligibility Criteria for Setting up an Indian Subsidiary

• A private business must have a minimum of two directors.
• An Indian citizen should serve as one of the company’s directors (the director who has stayed in the previous calendar year for at least 182 days in India).
• A Private Limited Company must have at least two shareholders.
• A current digital signature certificate should be held by the nominated directors.
• In order to maintain control and management of the company in their hands, foreign shareholders should own the majority of the company’s shares.
• India should be the country where the business is based. A number of RBI and FEMA regulations must be followed when subscribing for corporate shares.

Benefits a Foreign company can get by setting up an Indian Subsidiary 

Increase in Brand Value: The sound corporate structure, customers feel trust and confidence in a brand when purchasing company products or services, employees feel secure in joining the private limited company, vendors feel secure in extending credit, investors feel secure in investing, and the brand value of a company will rise. Many new businesses begin with no income and quickly grow to be worth billions of dollars in only a few short years because to their strong brand recognition.

Continuity of Existence: In most cases, a company’s existence is unaffected by its shareholders’ status, and the private limited company can still exist even after a shareholder’s passing.

Scope of Expansion: Due to the ease with which venture capitalists, financial institutions, angel investors, and the benefits of limited liability, Private Limited offers more transparency in the company, the scope of expansion is higher.

Limited Liability: The private limited company’s directors and members’ liability is restricted to their shares. This means that even if the company experiences a loss or financial trouble as a result of its main commercial activity, the shareholders, members, or directors’ personal assets will not be in danger of being taken by banks, creditors, or the government.

FDI (Foreign Direct Investment): In several business activities/industries, foreign direct investment (FDI) is completely permitted without any previous authorization. But in a proprietorship or partnership, FDI is not permitted; LLP requires previous government authorization.

Documents required for establishing an Indian Subsidiary

• Photograph of all Directors and Shareholders
• PAN Card of all the Indian Shareholders and Directors
• Electricity Bill or any other utility bill for the address proof of the registered office
• Apostille ID proof of all the Directors

Below are the specific Documents required for establishing an Indian Subsidiary:

• A company must have a registered office in India
• The utility address bill as address proof shall be submitted to ROC
• Bank statement and or electricity bill must not be older than 2 months
• NOC from the landlord to use the office as a registered office of a company must be submitted

FAQs on establishing an Indian Subsidiary

1. Can a company form an OPC (One Person Company) as an Indian Subsidiary?

According to Rule 3 of the 2014 Companies Rules, only a natural person who is an Indian and a resident of India is qualified to incorporate OPC. Therefore a foreign company cannot be established as an OPC (One Person Company).

2. Can a non-resident be a director of an Indian Company?  

Yes. An Indian company must have at least two directors (one of them must be an Indian Resident director). You can have more than 1 person as Foreign Director on Indian Company’s board.

3. Is the appointment of a foreign director for a subsidiary company required?

Yes, the appointment of a foreign director for a subsidiary company is required. It would be impossible to oversee the operations of a subsidiary company without performing this step.

4. What does the term “subsidiary corporation” denote? Is it equivalent to an Indian subsidiary in meaning?

A subsidiary company is an organization that is under the control of the parent company or the holding company, as defined by the Companies Act of 2013. Therefore, a foreign parent business or holding company controls an Indian subsidiary. An organization that has its parent company registered in India can be considered a subsidiary. However, a foreign corporation controls an Indian subsidiary, which is an entity.

Conclusion

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. 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.