Incorporation of Wholly Owned Subsidiary in India
A foreign company can set up its operations in India in many ways like Branch Office, Liaison office, project office, etc. All these entities have a status of “Foreign Company” in India. In case the foreign company wants to operate in India, it can do in either of 2 ways, i.e., it can open either partly owned subsidiary company in India as subsidiary company or it may open wholly owned subsidiary company in India, in both situation its status would be that of an Indian company or domestic company.
Important Factors to be considered in opening up of wholly owned subsidiary company in India:
- Any foreigner can become director in Indian wholly owned subsidiary company
- Any foreigner or foreign company can become shareholder of Indian wholly owned subsidiary company
- At least one Director should be Resident in India
- There is no maximum limit on amount of authorized and paid up capital in India
- Every year at least 4 Board meeting and at least 1 shareholder meeting shall be held in India
Incorporation of Indian Subsidiary Company involves 2 stages:
- First Stage- Pre registration procedure
- Second Stage- Post registration procedure
Steps for Registration of Wholly Owned Subsidiary Company in India
Step 1: Acquiring DSC or Digital Signature Certificate
Step 2: Acquiring the DIN or Director Identification Number
Step 3: Applying for Company Name Registration
Step 4: Applying for Incorporation of company
Step 5: Issue of Certificate of Incorporation of company
Step 6: Applying for PAN and TAN of Company
Since one or more Directors are a foreign citizen, any contribution to capital would be considered as FDI and accordingly, RBI compliance needs to be done by you.
Step 1: Remittance of subscription amount in India bank a/c (within 2 months of incorporation) through wire transfer from foreign country bank account to Indian bank account
Step 2: Obtaining FIRC & KYC docs from the Bank
Step 3: Reporting receipt of share application money with RBI within 30 days of receipt of funds (Advance Reporting form along with KYC & FIRC)
Step 4: Allotment of shares immediately and
Step 5: Reporting in Form FC-GPR within 30 days of date of allotment (& of course post receipt of share application money) and follow up from bank from time to time.
Step 6: Issue of share certificates
Inclusion in our package
DSC and DIN of 2 Directors
Company Stamp, PAN & TAN Registration
Company name approval certificate
Allotment of shares within prescribed time
Copy of Certificate of Incorporation
Issue of shares certiifcates
25 copies of MOA& AOA
Filing of Form FCGPR within prescribed time
Time Involved in the Process
Approx. 12-15 working days till getting Incorporation certificate
Approx. 8 working days in getting PAN/TAN
Approx. 5 working days in opening bank account
Approx. 50 to 60 days in all RBI compliances
Documents and information required for Registration
- Name of a subscriber (holding co.) with an occupation.
- Name of Individual subscriber
- Name of nominee shareholder on behalf of Company
- Required DIN of proposed directors (minimum 2) with an occupation.
- Mobile No. & E-mail I.D and occupation of Proposed Directors/subscribers/nominee shareholder.
- Proposed names (in order of preference) of the company.
- The signification of the proposed name.
- The main object of the proposed company.
- Proposed authorized capital of the company.
- Self-attested copy of ID Proof of proposed Directors (Voter ID/ Passport/ Driving License) of director/subscriber/nominee
- Self-attested copy of Residential Proof of Proposed Directors/Promoters/nominee (Bank Statement/Electricity Bill/Telephone Bill/Mobile Bill) (not older than two (2) Months) of director/subscriber/nominee
- Self-attested copy of adhaar card of director/subscriber/nominee
- MOA, AOA & COI of foreign holding Company, attested by director of that company duly translated in English, if not in English language & Certified by Indian Consulate
- COI of the foreign holding company attested by a director of that company duly translated in English, if not in English language & Certified by Indian Consulate.
- Self-attested copy of PAN Card of director/subscriber/nominee, if available
- Self-attested copy of Passport of foreign director/subscriber/nominee.
IN CASE OF FOREIGN DIRECTORS, ALL THE AFORESAID DOCUMENTS SHOULD BE NOTARIZED AND APOSTILLED OR CONSULARIZED. IN CASE DOCUMENTS ARE NOT IN ENGLISH, TRANSLATED COPY IN ENGLISH SHOULD BE NOTARIZED AND APOSTILED OR CONSULARIZED.
Things to be kept in mind while registering wholly owned subsidiary in India
Before any foreign company makes a decision for registering wholly owned subsidiary in India, it should keep following points in consideration:
➡️ Number of Directors and shareholders required for registration of Indian subsidiary company
➡️ Nominee Shareholders required for holding shares in Indian subsidiary
➡️ Amount of authorized and Paid up share capital required for registration of wholly owned subsidiary company in India
- Number of Directors and shareholders required for registration of Indian subsidiary company
Legally, 2 directors are required for registering Indian subsidiary of foreign company out of which at least 1 director shall be Indian citizen and Indian Resident. However, for practical purpose, it is advisable to have at least 2 Resident Indian directors. This will facilitate holding of board meetings, passing Board resolutions etc. otherwise, each document has to be sent to foreign director for his signing etc. Also, all documents which come from foreign company need to be apostiled and notarized which will increase time and cost. Therefore, there should be at least 2 Indian Resident Directors. There can be any no. of foreign Directors
- Nominee Shareholders required for holding shares in Indian subsidiary
Since foreign company would be shareholder, therefore, it has to appoint one person as authorized signatory [Nominee Shareholder] who would subscribe shares of Indian subsidiary company on behalf of foreign company because foreign company being non-individual cannot hold shares of its own. Indian Directors cannot become authorized signatory. It has to be new person either Indian or foreign citizen.
- Amount of authorized and Paid up share capital required for registration of subsidiary in India
Each time parent company will subscribe shares of subsidiary company in India and send share subscription money, it will be considered as FDI and RBI compliance need to be done i.e filing of form ARF, FCGPR etc. Therefore, in order to avoid time and cost of compliance, it is advisable to have sufficient share capital while registering subsidiary company in India. You must estimate your total working capital and capital investment need in India for next 4 to 6 months and with that amount of share capital, 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 same for authorized capital between Rs 1 lac to Rs 10 lac. After Rs 10 lac, ROC fees increases. For example for Rs 15 lac capital, ROC fees is approx. Rs 55,000.
Therefore, if a parent company opts for incorporation of subsidiary company, 4 individuals will be required. 2 Indian Directors, 1 foreign Director, 1 authorized person [nominee shareholder] who will held shares on behalf of parent company.
Also, it should start company with sufficient share capital [approx. 3 to 6 months of estimated monthly expenditure in India].
In a nut shell, keeping in view aforesaid points will be very useful for subsidiary company registration in India.
PROS and CONS of Wholly-Owned Subsidiary
Advantages of Wholly-Owned Subsidiary (WOS):
Starting a wholly-owned subsidiary can be very lucrative for companies and businessman. Due to its many of the advantages it can be a viable option for the following reasons-
- Although it is owned by a parent company but a wholly-owned subsidiary is considered as a separate legal identity and has its own management.
- The time consumption in the process of registration is less for a WOS.
- It requires less investment to register this form of a company as compared to other forms.
- A WOS is easy to handle whether it is in terms of finances or in terms of operations. It is easy to manage this type of company.
- Since a WOS already has a parent company, the financial issues of the same can be managed with the financial resources of the parent company.
- The parent company of the WOS partially or fully supports its operational commitments.
- The risk management of this type of company can be managed easily with the help of the investments made in the research and development sector.
- It also gets benefitted from the expert knowledge and guidance from the parent company and its field experts.
Disadvantages of Wholly-Owned Subsidiary (WOS):
In addition to the advantages of a wholly-owned subsidiary, one must also be aware of all the disadvantages of this form of company to be prepared for the future. The disadvantages of opening a wholly-owned subsidiary are as follows-
- Despite having separate management from the parent company, it has a restricted independency. This is because it is considered as a part of a large organization. The wholly-owned subsidiary cannot make its own decision related to major or important subjects.
- Being part of a larger corporate house can lead to delay in decision making, legal processes, documentation work, taxation matter, and other areas for the wholly-owned subsidiary.
- It can double the scope of work for the WOS.