Some Issues Relating to Investment in wholly owned subsidiary in India by foreign company and investment in LLP
- Foreign Direct Investment (FDI)
Any investment made in wholly owned subsidiary in India by foreign company will be considered as FDI. FDI means investment
(a) in an unlisted Indian company; or
(b) in 10 percent or more of the post issue paid-up equity capital on a fully diluted basis of a listed Indian company.
- Mode of payment
Any foreign company which is opening an Indian subsidiary can make investment in subsidiary company in India through normal banking channels in India or paid out from or received in, as the case may be, NRE/ FCNR (B)/ Escrow accounts maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016.
- Capital instruments issued by wholly owned subsidiary company to its parent company
Pricing of shares to be subscribed in wholly owned subsidiary in India by foreign company should not be less than
- Price as per SEBI guidelines in case of Listed companies or
- Valuation of shares done by any internationally accepted pricing methodology duly certified by CA or SEBI registered Merchant Banker in case of Unlisted Company
- Subscription to Memorandum of Association
During formation of wholly owned subsidiary in India, when Indian shares are issued to parent company by way of subscription to Memorandum of Association, such investments shall be made at face value subject to entry route and sectoral caps.
- Investment in an LLP
In case of LLP registration by Foreign company, any investment either by way of capital contribution or by way of acquisition/ transfer of profit shares, should not be less than the fair price worked out as per any internationally accepted valuation norm and a valuation certificate to that effect should be issued by a Chartered Accountant or by a practicing Cost Accountant or by an approved valuer from the panel maintained by the Central Government.
- Transfer of capital contribution/ profit share of an LLP
- In case of transfer of capital contribution/ profit share of an LLP from a person resident in India to a person resident outside India, the transfer should be for a consideration not less than the fair price of capital contribution/ profit share of an LLP.
- In case of transfer of capital contribution/ profit share of an LLP from a person resident outside India to a person resident in India, the transfer should be for a consideration which is not more than the fair price of the capital contribution/ profit share of an LLP.
- Purchase/ Sale of capital instruments of an Indian company
Issue by a wholly owned subsidiary
A wholly owned subsidiary set up in India by a foreign entity, operating in a sector where 100 percent foreign investment is allowed under the automatic route and there are no FDI linked performance conditions, may issue capital instruments to the said parent company against pre-incorporation/ preoperative expenses incurred by the said foreign entity up to a limit of five per cent of its authorized capital (as defined in the Companies Act, 2013) or USD 500,000 whichever is less, subject to the following conditions:
(a) Form FC-GPR, is filed by the Indian wholly owned subsidiary company within thirty days from the date of issue of capital instruments but not later than one year from the date of incorporation.
(b) A certificate issued by the statutory auditor of the Indian subsidiary company that the amount of pre-incorporation/ pre-operative expenses against which capital instruments have been issued has been utilized for the purpose for which it was received should be submitted with the Form FC-GPR.
Pre-incorporation/ pre-operative expenses will include amounts remitted to the investee Company’s account or to the investor’s account in India if it exists or to any consultant or attorney or to any other material/ service provider for expenditure relating to incorporation or necessary for commencement of operations.
Mode of payment, issue of capital instruments and refund
In case Indian subsidiary company is unable to issue shares to parent company within sixty days from the date of receipt of the consideration, the amount so received has to be refunded to the person concerned by outward remittance through banking channels or by credit to his NRE/ FCNR (B) accounts, as the case may be, within fifteen days from the date of completion of sixty days.