Foreign Company Registration in India – Things to be kept in mind

Once a foreign company or foreign citizen has decided on company registration in India, some important points shall be considered to have a smooth and hassle-free company registration experience.

Following things shall be kept in mind while opting for foreign company registration in India:

  1. Type of company, i.e., whether the wholly-owned subsidiary company or normal company.
  2. Number of Directors and shareholders.
  3. Nominee Shareholders.
  4. Amount of authorized and Paid-up share capital.
  5. Nature of business of the proposed company.

1)     Type of Company

There are two options for foreign company registration in India. First, suppose a foreign or parent company wants to hold 100% shares in the proposed Indian company. In that case, the Indian company will become a wholly-owned subsidiary company of the parent company. Second, if any, foreign citizen holds shares in the Indian company instead of a foreign company, then the Indian company would be a normal company with individual foreign shareholders. In both cases, share subscription money contributed by either a foreign company or individual shareholders would be considered FDI in India. RBI needs to be intimated once money is received in an Indian bank account after company registration in India.

2)     Number of Directors and Shareholders

As per law, a minimum of two directors is required for company registration in India, out of which at least one director shall be an Indian citizen and Indian Resident. However, for practical purposes, it is advisable to have at least 2 Resident Indian directors. It will facilitate the holding of board meetings, passing Board resolutions, etc. Otherwise, each document has to be sent to the foreign director for his signing, etc. It will be costly and time-consuming.

Further, any document required from foreign directors needs to be apostilled and notarized in His home country, increasing time and cost. Also, in India, at least four board meetings are required to be held every year. So in case, there are only two directors, the foreign director has to visit India to attend board meetings again and again. In contrast, if there are 2 Indian Directors, they can hold and attend board meetings, and each time, foreign directors don’t have to visit India. Therefore, there should be at least 2 Indian Resident Directors. So there can be any no. Of foreign Directors.

3)     Nominee Shareholders

In case a foreign company opts for subsidiary company registration in India, in such a case, the foreign company would be a shareholder. Therefore, it has to appoint one person as authorized signatory [Nominee Shareholder] who would subscribe to shares of an Indian company on behalf of a foreign company because a foreign company being non-individual, cannot hold shares of its own. Indian Directors cannot become an authorized signatory. Therefore, it has to be a new person, either an Indian or a foreign citizen.

4)     Amount of Authorized and Paid-up Capital

As mentioned above, any share subscription money contributed by a foreign company or individual foreign shareholder would be considered FDI in India. Its compliance needs to be done with an RBI and ROC. It involves the cost of professionals as well as is time consuming. Therefore, to avoid time and cost of compliance, it is advisable to register an Indian company with sufficient share capital in an Indian company. The company may estimate their total working capital and capital investment need in India for an initial 4 to 6 months until revenue starts coming in business. With that amount of share capital, the Indian subsidiary company shall be registered. Normally, Rs 10 to 15Lac is ideal to start.

Further, it may be noted that government fees [ROC fees] is the same for authorized capital between Rs 1 Lac to Rs 15 Lac. However, after Rs 15 Lac, ROC fees increase.

5)     Nature of Business of proposed Indian Company

Another important factor to be considered is about the nature of the business of the proposed company. It may be noted that foreign investment in most businesses in India is allowed under the automatic approval route, and no permits or RBI or any other authorities are required. However, there are certain businesses in which foreign investment is allowed only subject to government approval. Therefore, the nature of business is also a very important consideration for deciding foreign company registered in India.