A wholly-owned subsidiary of a foreign company is one of the most effective and feasible options for a company or corporation to foray into a new market and also to extend their business beyond its nation’s boundaries. As the name implies, a wholly-owned subsidiary is a type of subsidiary whose 100% of shares are owned by another company, often a foreign company, known as the parent company of the subsidiary. As a result, a wholly owned subsidiary is wholly controlled by a single business entity which is its parent company. The Companies Act 2013, and the Foreign Exchange Management Rules/Regulations made by the Government of India and the Reserve Bank of India govern a wholly-owned subsidiary of a foreign company in India.
In order to register a wholly-owned subsidiary of foreign company in India, certain conditions need to be satisfied by that foreign company including minimum number of directors, having a registered office address in India, minimum eligibility, prerequisite documents requirements and so on. The blog sheds light on some of the key aspects of a wholly owned subsidiary of a foreign company including essential documents checklist for incorporation of a wholly owned subsidiary in India and a few more to help you make informed decisions.
The parent company must be an incorporated legal entity in the country of origin. Certain documents such as a Certificate of Incorporation, Articles and Board Resolution are also required.
At least two directors are required; one of them must be a resident of India. An Indian resident can ensure timely and faster compliance with local laws and regulations as he will be familiar with them.
A parent company must have at least two signatories for representing 100% shareholding. Both these signatories can be Foreign Nationals or non-residents of India (NRIs).
The company’s object should be legal. In India, most of the sectors allow FDI .
No minimum or maximum limit for capital is specified for setting up a wholly owned subsidiary in India. However, providing sufficient capital to foster the initial operations of the subsidiary and ensuring future growth is advisable.
Select a distinct name for your subsidiary and also check that the chosen name complies with the Company Act 2013 and is not already used and registered by another entity.
Setting up a wholly owned subsidiary requires a number of documents from the directors/shareholders, foreign company, and also some post-registration documents.
A foreign company opening a wholly-owned Indian subsidiary must fulfill certain documents requirements which include documents required while incorporation of the subsidiary and also some documents required post incorporation of the Indian subsidiary of the foreign corporation. Those documents list go as below;
Seek assistance from a legal professional to arrange documents required for incorporating a wholly owned subsidiary in India.
Multiple benefits are associated with setting up a wholly owned subsidiary in India. Some of the key benefits of a wholly owned subsidiary in India are described below;
Similar to a company, a wholly owned subsidiary also becomes a separate legal entity or you can say an artificial person in the eyes of the law and each member/shareholder’s liability gets limited up to their portion of unpaid shares. Due to which, if a company meets loss under any circumstances, then the parent company of this WOS is not obliged to sell its own assets to settle the loss.
Since the parent/holding company holds complete shareholding in a wholly owned subsidiary, it fully controls the affairs and strategies of that Indian subsidiary.
Registering a wholly owned subsidiary is quite simple as the registration process is completely online thus requiring nominal paperwork. And this process may hardly take 12-15 working days.
A Wholly owned subsidiary of a foreign company has the leverage of a good brand name and reputation of its well-established parent company located outside India. Moreover, it also enhances the overall valuation and market share of the parent in the product/service market.
Having a huge and diverse population, India can turn out to be a great potential market for new goods and services. As a result, a foreign company can make its way to such a huge marketplace with the formation of a wholly-owned subsidiary in India.
The wholly-owned company possesses faster exit options to companies with zero assets and liabilities and want to close their business due to some undesired circumstances.
If a foreign company fulfills the aforementioned minimum eligibility criteria and documentation requirements for incorporating an Indian subsidiary of a foreign company, it can proceed further with the process of incorporating a subsidiary of a foreign company in India. The following steps need to be followed;
The board of members of the parent company must approve and authorise a signatory for incorporation of an Indian subsidiary. The legislation of the board resolution and POA is required.
The Indian subsidiary of a foreign company may either select a new name or use the parent name followed by ‘India’. The proposed name of the Indian subsidiary must adhere to the specified laws or provisions and not infringe on any already trademarked name in India.
The MOA and AOA of a company are legal documents that outline its objectives, and internal rules & regulations of the company. A few more declarations may also be required for promoters to sign.
The MOA, AOA, and declarations signed in a foreign country need attestation or legalization. The attestation can be done when a signatory visits India on the Business Visa.
SPICE Plus is an online form (eform) which is used to incorporate an Indian subsidiary of a foreign company. Scanned copies of documents are attached, and the form is digital signed by the authorised director and independent CS professionals.
Upon finding submitted information and documents valid, the Registrar of Companies issues a Certificate of Incorporation. It is a legal proof of the incorporation of the subsidiary of a foreign corporation in India and also includes the CIN, PAN and TAN numbers.
Follow these steps to successfully incorporate a wholly owned subsidiary of a foreign company in India.
Connect to professional experts who can help in incorporation of wholly owned subsidiaries of a foreign company in India in a hassle-free and streamlined manner.
The documents that are signed or executed in a foreign company require attestation before using them for incorporation of its wholly-owned Indian subsidiary with the concerned statutory bodies or government departments in India. The way of legalization of documents may vary depending upon the classification of origin country of the company which are;