Foreign companies and foreign nationals including Non-Resident Indians setting up business in India face a lot of questions relating to the type of companies to choose for registration. Shall they apply for a subsidiary company or wholly-owned subsidiary company and also what are the requirements for setting up business in India.
In this write-up, we have tried to compile the most frequently asked questions relating to company registration in India by foreign companies and foreign nationals.
Q1. What is meant by a wholly-owned subsidiary? How is it different from a Subsidiary Company?
Ans: When 100% shares of an Indian company are held by the parent company, the Indian company becomes a wholly-owned subsidiary (WOS) of the parent company. If the parent company holds 51% to 99% shares of an Indian company, the Indian company becomes a subsidiary company of the parent company.
Q2. What are the minimum requirements for company registration in India?
Ans: For company registration in India, the following conditions must be fulfilled:
- Indian companies should have a minimum of 2 shareholders and 2 Directors.
- At least 1 Director in the Indian subsidiary shall be an Indian Citizen and Resident in India.
- There is no prescribed capital. Therefore, there is no requirement of minimum capital to be kept in the company in the form of authorized and paid-up capital. However, capital must be sufficient to meet day-to-day expenses for initial 3-4 months.
- There should be a local office address in India as the registered address of the company.
- Business activity of the proposed Indian company shall fall under the automatic approval route otherwise; prior approval of the Government would be required.
Q3. We are 3 friends based in the USA. We already have a company in the USA. Now, we also want to register a company in India. How can we register a company in India?
Ans: There are 2 options available. Your company in the USA can acquire shares of a proposed Indian company. In this case, the Indian company will become a subsidiary of a USA-based company. If 100% shares of an Indian company are held by the USA Company, the Indian company will become a wholly-owned subsidiary of the USA based company. If the USA Company holds more than 50% shares of an Indian company, the Indian company will become a subsidiary of the USA Company. The second option is that instead of the USA Company, all 3 individuals can hold shares in the proposed Indian company. Also, all 3 of them can also become. directors in Indian companies. However, one local director who is an Indian resident and Indian citizen would also be required for company incorporation in India.
Q4. Can 100% shares of an Indian company be held by the parent company?
Ans: In India, both shareholders must hold at least 1 share. Accordingly, 99.999% shares of an Indian company can be held by the parent company. Only 1 share can be held by a nominee shareholder and 99.999999% shares can be held by authorized representatives on behalf of the parent company.
Q5. We do not have a local Indian Director. Is it compulsory to have a local Indian Director?
Ans: Yes, for Indian company incorporation, it is compulsory to have at least one Residential Indian Director. He should be a Resident in India as well as an Indian Citizen. We, at EzyBiz India, can help in arranging local Indian Directors at nominal monthly charges.
Q6. We want to use the brand name or Trademark of the parent company. Can we use the same when we incorporate wholly-owned subsidiary companies in India?
Ans: Yes, wholly-owned subsidiary companies in India can use the brand name or trademark of the parent company. For the same, a No objection certificate needs to be obtained from the parent company. Also, the parent company will pass a board resolution in the home country relating to the same. However, it may be noted that approval of such brand name or trade name of the foreign company is subject to the approval of ROC/MCA.
In 90%-95% of cases, approval is granted but sometimes approval is not granted in case the name of a parent company or name resembling that of the parent company is already registered before trademark authority in India.
Q7. If a Foreign Company wants to incorporate a wholly-owned subsidiary company in India, how many individuals will be required as shareholders and Directors?
Ans: Minimum 3 individuals will be involved for incorporation of a wholly-owned subsidiary company in India. 2 Individual Directors out of which one must be Indian resident, another one can be foreign national, and one nominee shareholder for holding 1 share in an Indian Subsidiary Company. Nominee shareholders can be Indian or foreign national but they should be different from Indian and Foreign Directors.
The remaining 99.99% shares can be held by the Parent Company.
Also, since the parent company cannot hold shares itself, it will appoint an individual as its authorized representative for holding shares in the Indian Company on its behalf. This individual can be Foreign Director also.
If an authorized representative is other than a foreign Director, then 4 individuals will be involved in company incorporation in India.
Q8. We do not wish to allot any shares to the Indian resident Director. Is that allowed?
Ans: Yes. It is not necessary that a director should also be a shareholder in an Indian Company. Foreign companies as parent companies can retain 100% ownership of Indian Company. Only one share needs to be held by a nominee shareholder.
Q9. We do not wish to allot any shares to Foreign Director. Is that allowed?
Ans: Yes. It is not necessary that a director should also be a shareholder in an Indian Company. Foreign companies as parent companies through authorized representatives can retain 100% ownership of Indian Company.
Q 10. How much Capital is required for Company formation in India?
Ans: There is no minimum capital prescribed for company formation in India. However, Indian subsidiaries shall be incorporated with sufficient capital.
This is because an Indian wholly owned subsidiary has to meet its day-to-day business expenses only from the capital i.e share subscription money in a bank account available. When a foreign company subscribes to shares of an Indian subsidiary and brings money into an Indian subsidiary bank account through wire transfer, it will be considered as FDI, and RBI compliance relating to reporting of such FDI needs to be done. This involves the cost of professionals as well as is time-consuming.
If there is not sufficient capital in the Indian subsidiary bank account, again shares will be issued to the parent company and money will be brought into the Indian bank account which will be considered as FDI, and RBI compliance needs to be done again and again.
Therefore, in order to avoid time and cost of compliance, it is advisable to have sufficient share capital in an Indian company. Indian subsidiaries must estimate their total initial working capital and capital investment needed in India for the next 4 to 6 months and with that amount of share capital, an Indian subsidiary company shall be registered. Normally, Rs 10 to 15 Lac is ideal to start.
Further, it may be noted that government fees [ROC fees] are the same for authorized capital between Rs 1 lac to Rs 15 lac. After Rs 15 lac, ROC fees increase.
Above is an important point for consideration for any subsidiary company registration in India.
Q11. What are the steps involved in company formation in India?
Ans: There are 4 steps involved in company formation in India. Another 5 steps are involved in post incorporation compliance to make the company ready for doing business operations.
Step-1: Applying for Digital Signature of all Directors, shareholders, and authorized representatives.
Step-2: Applying for Name approval of Indian Company.
Step-3: Drafting of MOA, AOA and applying for Final Incorporation of Company, Director Identification number of Directors.
Step-4: Obtaining Certificate of Incorporation of company.
Once a company is incorporated, some additional compliance needs to be done
Step-5: Applying for the opening of a current account with the Bank.
Step-6: Applying for approval to obtain FDI in India in case business activity does not fall under the automatic approval route or if FDI is coming into India from landlocked countries with India like China, Pakistan, Bangladesh, Sri Lanka, etc.
Step-7: Applying for GST registration.
Step-8: Applying for Import Export License if there is export/import of goods or services.
Step-9: Applying for Certificate of commencement of business.
Step-10: Intimation of FDI received in India to RBI (also called RBI compliance) by filing necessary forms and allotment of shares and issuance of share certificate and intimating to ROC (also called as ROC compliance).
Step-11: Holding of Board Meeting and appointment of Auditors of Company within 30 days of commencement of business.
Q12. All the documents which relate to the foreign directors or foreign shareholders or parent company need to be notarized and apostilled in the home country i.e. foreign country. What is the meaning of apostille?
Ans: An Apostille is simply the name for a specialized certificate, issued by the Secretary of State. The Apostille is attached to your original document to verify it is legitimate and authentic so it will be accepted in one of the other countries that are members of the Hague Apostille Convention. India, since 2005, is a member of the Hague Convention of October 5, 1961, that abolished the requirement of legalization of foreign public documents.
Q13. What are the lists of documents required for company registration in India?
Ans: Following is the list of initial documents required for company registration in India:
STEP-1: FOR APPLYING DIGITAL SIGNATURE OF FOREIGN DIRECTOR and Foreign Authorized Representative
- Self-attested copy of Passport of Foreign Director/Foreign subscriber.
- Any proof of foreign residential address like a Self-attested copy of Bank statement containing the name and address of foreign Director OR utility bill (Electricity bill/Telephone Bill/Mobile bill) -not older than 2 months.
- Color passport size photograph of a foreign director.
- In case the passport or ID does not have the father’s name, any document showing the father’s name of a foreign Director.
- Valid email and Mobile No. of foreign directors.
- Place of Birth of foreign director [ Only mentioned in the mail, no documents required].
- Educational Qualification of foreign Director [ Only mentioned in the mail, no documents required].
- Occupational detail of foreign Director [ Only mentioned in the mail, no documents required].
- Duly filled Digital signature form notarized and apostilled [draft Digital Signature form attached].
Video, Mobile, and Email verification need to be done by a foreign director for getting digital signatures prepared/approved. [We will provide steps for verification later on].
All the documents of the foreign nationals (including the Digital Signature form) shall be notarized and apostille in the home country i.e USA or notarized and consumerized in case no Apostille authority is present.
Also, in case of documents that are not in the English language, English translation of the same shall be notarized and apostille.
FOR APPLYING DIGITAL SIGNATURE OF INDIAN DIRECTOR
- Self-attested copy of Aadhar Card.
- Self-attested copy of PAN card.
- Color passport photo.
- Valid email and Mobile No.
- Place of Birth [ Only mentioned in the mail, no documents required].
- Educational Qualification [ Only mentioned in the mail, no documents required].
- Occupational detail [ Only mentioned in the mail, no documents required].
- Additional residential address proof i.e latest copy of bank statement or driving license or utility bills like mobile bill or landline bill or electricity bill in name of Director.
- Duly filled Digital signature form notarized and apostilled.
Please note that in the case of an Indian Director, there is no need to get the documents notarized or apostilled or consumerized. Also, no need to send hard copies of documents. Only, a self-certified scanned copy will suffice.
STEP-2: DOCUMENTS FOR APPROVAL OF NAME OF PROPOSED COMPANY
- You need to provide two or three names of the Indian subsidiary company along with proposed business activities i.e what will be the main activities to be carried out by the Indian subsidiary company in 3-4 Lines.
- Name, registered address of parent company [Shareholder] which would be investing in an Indian company.
- What would be the percentage shareholding of the parent company and individual shareholders? Please provide the name of shareholders and their percentage shareholding.
- Provide a certified copy of the certificate of registration of a foreign holding company in its home country containing name, address and registration no. If a certificate of registration does not contain a registered address any other documents as address proof [ latest not more than 2 months old].
- Copy of NOC by way of a resolution passed by Holding Company for incorporation subsidiary in India.
- Copy of NOC from the owner of a registered or applied TM if the name resembles the TM.
- Name of Indian state where the registered office shall be situated.
All the documents of the foreign citizen/company mentioned in step 2 above shall be notarized and apostille for notarized and consumerized in case no Apostille authority is present. Also, in case of documents that are not in the English language, English translation of the same shall be notarized and apostille.