Incorporation of Wholly Owned Subsidiary Company in India- What one should know?
With ease of doing business and government of India’s initiative of attracting foreign investment in India, more and more foreign companies are setting up business in India.
In this regard, one of the options available for foreign company incorporation in India is in form of Wholly Owned Subsidiary Company in India.
In this write up, we have provided brief overview of Incorporation of Wholly Owned Subsidiary Company in India.
When parent company holds 100% shares of Indian company, Indian company becomes wholly owned subsidiary company of parent company.
Registration of Wholly Owned Subsidiary Company in India
Foreign companies opt for this option of entity set up when
- They have long term intention to stay in India and explore Indian market with aim to do full scale business operations in India.
- When they want to use the same brand as in home country.
Permissible business activities
- Any activity which is permissible as per FDI guidelines and also mention in the company’s memorandum of association can be done by wholly owned subsidiary company in India.
- RBI has allowed 2 routes for investment in India i.e. automatic route and government approval route. Most of the business activities are permissible under automatic route and for very few business sectors prior approval of government of India is required.
- Also, RBI has prescribed some prohibited sectors where wholly owned subsidiary companies cannot make any investment.
Therefore, this is an important aspect to be kept in mind before Registration of Wholly Owned Subsidiary Company in India.
Conditions required for Incorporation of Wholly Owned Subsidiary Company in India.
- It can be incorporated in both the forms i.e Public Limited Company or Private Limited Company. For Public Limited Companies, minimum 3 Directors and minimum 7 shareholders are required whereas for Private Limited Companies, minimum 2 Directors and minimum 2 shareholders are required.
- Foreign company can also become shareholder in Indian subsidiary company. All directors must be individuals. At least one Director must be Indian Citizen and Indian Resident.
Prior approval of ROC/MCA is required for Incorporation of Wholly Owned Subsidiary Company in India. In case investment is under government approval route, prior approval of FIFP and RBI is also required.
Tax Rates Applicable on Wholly Owned Subsidiary in India
Different tax rates like 15%, 22%, 25% and 30% are applicable on wholly owned subsidiary company depending upon case to case. Also, it is subject to MAT @ 15% of book profits.
Repatriation of Profits
Wholly owned subsidiary companies can freely repatriate profits out of India after doing some procedural compliance. The procedure is quite simple.
Exit out of India
Winding up or Exit of wholly owned subsidiary company is a time consuming and complex procedure depending upon exit strategy adopted.
In a nut shell, wholly owned subsidiary company is very suitable and widely popular form of entity registration in India.