Incorporation of Foreign Subsidiaries/Joint Ventures

//Incorporation of Foreign Subsidiaries/Joint Ventures

Incorporation of Foreign Subsidiaries/Joint Ventures:  India is currently one of the fastest growing economies of the world. Over the past year, the government has liberalised FDI norms for several sectors making India the most open economy in the world for FDI. However there are some complex tax and laws structure which demands for high quality assistance in the formation process from the perspectives of Company Law, Foreign Exchange Laws and other Laws. An overseas Company planning to set up business operations in India has following options;

  1. Liaison/representative office
  2. Project Office
  3. Branch Office
  4. 100% Wholly owned subsidiary
  5. Joint venture company

Investment by a foreign company in India

As per Consolidated FDI Policy Circular of 2017 applicable from 28th August 2017, investment can be made by a foreign company in India through:

  • An automatic route, where approval of the government of India will not be needed by a non-resident investor for the investment.
  • Government route: all FDI proposals will be cleared by individual ministries and administrative departments of the government of India in consultation with Department of Industrial Policy and Promotion (DIPP). Earlier it was done through Foreign Investment Promotion Board, but after the government abolished it on 24th May 2017.

A list of the Competent Authorities for grant of approval for foreign investment for sectors/activities requiring Government approval is available in the Consolidated FDI Policy Circular of 2017 applicable from 28th August 2017, provided on the official website of DIPP.

http://dipp.nic.in/policies-rules-and-acts/policies/foreign-direct-investment-policy

A list of various sectors in which 100% FDI is permitted by the government is provided in the Consolidated FDI Policy Circular of 2017 applicable from 28th August 2017, provided on the official website of DIPP. The government continuously updates both these list and rules and regulation regarding FDI according to changing policies to make business easier and easier in India and attract more and more investment in India.

 

Minimum requirements-

  • Capital: There is no minimum capital required to form a Private Limited Company in India.
  • Directors: Minimum two directors are required to incorporate a Private Company in India. Both should be individuals and at-least one of whom should be a resident of India. (A resident of India is a person who has stayed in India for at-least 182 days in the previous year).
  • Shareholders: Companies Act, 2013 requires that a Private Limited Company have a minimum of two shareholders. There is no condition for residential status of shareholders.  Shareholders can be either individuals or entities or a combination of both.

Procedure of Formation of Subsidiary in India:

  1. Name Application: The name of the Company can be applied through RUN process on the website of Ministry of Corporate affairs (MCA). No details of the Company are to be mentioned at this stage of incorporation only the name and business object of the Company is to be mentioned. However approval of name through RUN is an optional way.

Alternatively Companies can also apply for the name along with all the Documents for incorporation.   

  1. Drafting and Preparation of Documents:

Memorandum of Association

Articles of Association

INC-9 Declaration by the subscribers and the first Directors

DIR-2 declaration from the first Directors

Declaration from the foreign subscribers in respect of not having a PAN.

Registered office address proof along with the rent agreement or consent from the owner of the premise.

Digital Signature of anyone of the subscriber.

Generally, the incorporation documents are required to be self-attested by Indian Nationals. However, in case of Foreign Nationals, the process is as under:

In the documents are signed outside India, then the  same have to be notarized by a Public notary of the residence country and consularized or apostilled by the competent authority, as the case may be.

If the documents are signed in India, then copy of Visa and stamped passport, proving his/her presence in India at the time of signing is required.

If the subscriber is a foreign entity, then the Incorporation documents should be signed by the representative of the foreign entity. A resolution stating the name of the Authorized Person and the number of shares subscribed should be notarized, consularized or apostilled, as the case may be in the home country of the subscriber company.

Certificate of Incorporation

Once the Incorporation application is approved, the Registrar would issue a Certificate with a Corporate Identification Number (CIN). The PAN and TAN of the Company would also be allotted simultaneously.

Post Incorporation

Treatment of Share Capital invested by the Holding Company and required compliances

Foreign Investments in Indian Companies are regulated by FEMA Guidelines and the Reserve Bank of India. Whenever the holding company invests funds in the share capital of the Indian subsidiary, it has to follow RBI guidelines along with compliances under Companies Act 2013.

RBI Compliances:

A two-stage reporting procedure is to be followed when a company is raising funds from a foreign investor:

  • On receipt of funds: The Company has to provide details in an “Advance Reporting Form” to the RBI within 30 days of receiving funds from foreign investor(s).
  • The company has to issue shares within 180 days from the date of receiving funds.
  • On allotment of shares: The company has to report in specified form (FC-GPR) to the RBI, within 30 days from the date of issue of shares along with:

– A Certificate from the Company Secretary certifying that the company has complied with the procedure for issue of shares as laid down under the Foreign Direct Investment (FDI) Scheme, and,

– A certificate from a Chartered Accountant indicating the manner of arriving at the price of the shares issued to the foreign investors.

Disclaimer: The contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Users of the Information are expected to refer to the relevant existing provisions of applicable laws. The user of the information agrees that the information is not a professional advice. We assume no responsibility for any consequences of use of such information