Foreign Company Registration in India – Corporate Structure & Control in Subsidiary

Foreign Company Registration in India – Corporate Structure & Control in Subsidiary

There are many options for foreign company registration in India. Any Foreign company desirous of business set up in India can do so in form of subsidiary company or LLP or Joint Venture or Branch or Liaison office.

The regulatory authority for providing approvals for company registration in India are mainly ROC/MCA, RBI, and FIFP

The subsidiary company can be registered as wholly owned subsidiary company wherein the parent company will hold 100% share capital and control or it can be registered with less than 100% shareholding of the parent company.

Further, Subsidiary company registration in India can be in the form of a private limited company or a public limited company.

In this write-up, we will discuss corporate structure and control in the case of the subsidiary company in India.

  1. Structure of Directors in the company:

  1. Minimum 2 Directors are required for company registration in India out of which at least 1 director shall be an Indian Resident and Indian Citizen. One major advantage of having local directors is that it helps in avoiding any delay in administrative work. Also, these work and act as per the interests of the parent company giving the foreign company adequate corporate control and power over the subsidiary.
  2. Only the individuals are allowed to be appointed as directors and they are not required to be a shareholder in the company.
  3. Practically, a foreign parent company authorizes at least three directors in the company with one of them being an Indian resident. This Indian director is initially designated for a time period till the subsidiary is established. He/she can be removed as the director by the parent company at any point of time or as mentioned in the agreement. They are obligated to act or work as per the guidelines of the parent holding. The other appointed directors act as the representatives of the foreign company. They are usually being given the post of executive officers by foreign company.

    2. Structure of Shareholders in the company:

In the case of a wholly-owned subsidiary, 99.99% of shares are held by the parent company and only one or two shares are held by nominee shareholders.

To maintain efficiency in the company, a foreign company often has two nominee shareholders and that too, Indian residents. They are nominated as shareholders till the completion of subsidiary company registration in India. The shares held by them can be purchased by the foreign company at any given point in time.

    3. Appointment of the Managing Director:

The Companies Act, 2013 prescribes that every foreign company, post company registration in India, should appoint one of the directors as a managing director. This person is appointed as a full-time managing director and is usually given control power just like the parent company’s president or Chief Executing Officer (CEO).

He/she is generally the operational head of the subsidiary company, which runs all the day-to-day tasks and operations in the company in India.

The foreign company must provide the aforesaid structure by entering into an agreement in written format with the local directors and shareholders. 

    4. Appointment of full-time Company Secretary

Every Private Limited Company in India having authorized and paid-up capital of more than Rs 5 crore must appoint a full-time company secretary in whole-time practice.

Corporate Control in the Subsidiary in India

In order to exercise proper control over the subsidiary, the parent company may follow the following:

    A. Control on financial transactions

In order to have effective and efficient financial maintenance in the company, the funds must be released to the subsidiary on a monthly basis as per the budgetary guidelines followed by the parent company. This helps in monitoring and keeping a check on the financial transactions on a regular basis.

    B. Prior approval in strategic decision making:

The delegated or provided authority by the foreign company in the hands of the managing director must come with certain limitations. This implies that certain decisions cannot let alone be decided by the managing director and requires higher authority or board of director’s involvement.

Ownership of Intellectual Property in a subsidiary in India 

Intellectual Property Infrastructure and its protection is regulated by the written agreement and other statutory compliances in India. Some of the types of statutory protection available for intellectual property are-

  1. Copyright protection
  2. Trademark protection
  3. Patent protection
  4. Servicemark protection

Protecting the intellectual property of the subsidiary company and the parent company is utterly important because as long as the conditions of the statutory requirements are met, no formal agreement is required. It provides security and protection to the company from any fraudulent activity.

Provisions related to Research and Development Agreement in a subsidiary in India 

The main elements for an agreement between a subsidiary company in India and its parent foreign company for research and development are as follows-:

  1. Both the parties must agree to comply with all the local statutes, laws, rules, and regulations.
  2. The subsidiary must agree to provide the services as per the direction of the foreign company and not the other way round.
  3. The subsidiary must keep all the information provided by the foreign company confidential for security and protection purposes without any infringement.
  4. The subsidiary is liable to provide a detailed monthly or annual report about the finances and other operations of the company to the parent company.

Employee benefits in a subsidiary company in India

Post foreign company registration in India, it is the responsibility of the foreign company to check that the Indian employees receive competitive and industry-relevant benefits. A competent infrastructure for employee benefits and payments is to be adapted and implemented that is not easily changeable. The compensational benefits given to an employee are divided into the following parts

  1. Base Compensation
  2. Variable Pay that includes performance-based payments and incentives
  3. Flexible Expense Plan (FEP)
  4. Corporate Paid Expenses
  5. Pension Plan Contribution

We at EzyBiz India provide complete handholding to foreign companies desirous of setting up business in India in the form of Subsidiary companies, JV, LLP, BO, LO, PO. We also assist in all post-incorporation taxation and regulatory compliance, Accounting, Payroll, Audit, etc