Indian Subsidiary

What is an Indian Subsidiary?

An Indian subsidiary is a company that is established in India and is majority-owned by a foreign parent company. In this context, majority-owned means that the foreign company holds at least 51% of the subsidiary's equity shares. This arrangement allows foreign businesses to operate in India while retaining significant control over their operations.

Types of Subsidiaries in India:

Wholly Owned Subsidiary (WOS): A wholly owned subsidiary is entirely owned by the parent company. This structure provides the parent company with complete control over business decisions, strategies, and operations.

1. Advantages include simplified decision-making and the ability to implement global strategies without local interference.

Joint Venture (JV): A joint venture involves a partnership between a foreign company and a local Indian company, where both parties share ownership and control.

1. This structure is beneficial for foreign firms looking to leverage the local partner's market knowledge, distribution channels, and regulatory insights.

What are the features of Indian Subsidiary?

1. Separate Legal Entity

An Indian subsidiary is a distinct legal entity from its parent company, meaning it can enter contracts, own assets, and incur liabilities independently.

2. Limited Liability

The liability of the parent company is limited to its investment in the subsidiary. This feature protects the parent company from the subsidiary’s debts and obligations.

3. Regulatory Compliance

Indian subsidiaries must comply with the regulations set forth by the Ministry of Corporate Affairs (MCA), including regular filings, maintaining accounting records, and conducting audits.

4. Local Governance

The subsidiary operates under Indian laws and regulations, which govern its operations, taxation, labor laws, and corporate governance. This may include adherence to the Companies Act, 2013, and Goods and Services Tax (GST) regulations.

5. Autonomous Operations

An Indian subsidiary has the autonomy to make business decisions and implement strategies based on local market conditions, allowing for flexibility and adaptability.

6. Tax Obligations

Subsidiaries are subject to Indian taxation laws, including corporate income tax, GST, and any applicable state taxes. They may also benefit from tax incentives offered by the government in certain sectors.

7. Foreign Direct Investment (FDI) Guidelines

Subsidiaries must adhere to FDI regulations, including obtaining necessary approvals from the Foreign Investment Promotion Board (FIPB) or the Department for Promotion of Industry and Internal Trade (DPIIT) in certain sectors.

8. Local Management

While the parent company retains control, subsidiaries typically employ local management to oversee operations, ensuring that the business aligns with local practices and consumer preferences.

9. Ability to Raise Capital

Indian subsidiaries can raise capital independently through equity or debt instruments, allowing them to finance operations and growth initiatives without solely relying on the parent company.

10. Employment and Labor Relations

Subsidiaries can hire local employees and establish labor relations in accordance with Indian labor laws, which can facilitate workforce management and compliance.

11. Branding and Marketing

Subsidiaries can develop localized branding and marketing strategies to resonate with Indian consumers, enhancing brand recognition and acceptance in the market.

Registration Process for Indian Subsidiary

In India, the Ministry of Corporate Affairs (MCA) is the primary regulatory authority governing the incorporation and operation of Indian subsidiaries. The MCA enforces compliance with the Companies Act, 2013, which outlines the rules and regulations for registering a company, including foreign subsidiaries. Additionally, the Registrar of Companies (RoC), under the MCA, handles company incorporation, filings, and documentation. Depending on the sector, subsidiaries may also need approval from other regulatory bodies like the Reserve Bank of India (RBI) particularly for sectors requiring Foreign Direct Investment (FDI) clearance.

What are the documents required for Indian Subsidiary registration?

1. Parent Company Documents:

1. Certificate of Incorporation of the parent company (foreign entity).
2. A resolution from the parent company’s board approving the creation of an Indian subsidiary.
3. Memorandum of Association (MoA) and Articles of Association (AoA) of the foreign company.

2. Directors’ and Shareholders’ Documents:

1. Copies of passport, address proof, and PAN (for Indian directors).
2. Digital Signature Certificates (DSC) for directors (mandatory for electronic filing).
3. Director Identification Number (DIN) for directors.
4. Proof of identity and residence for foreign directors (such as passport or national ID).

Registered Office Documents:

1. Address proof of the registered office in India (rent agreement, utility bill, or lease deed).
2. No Objection Certificate (NOC) from the property owner if the office space is rented.

Other Documents:

1. Proof of capital structure and shareholding pattern.
2. Proof of the authorized and paid-up capital.
3. Foreign Investment details (if applicable).

What is the process of Registration for Indian Subsidiary?

Step1. Obtain Digital Signature Certificates (DSC)

1. The first step is to obtain DSCs for all proposed directors of the subsidiary. This is mandatory for signing digital documents and filings with the MCA.

Step2. Apply for Director Identification Number (DIN)

1. Directors must apply for DIN if they don’t already have one. This can be done online through the MCA portal using their personal information and proof of identity.

Step3. Reserve Company Name

1. The next step is to apply for the company name through the RUN (Reserve Unique Name) facility on the MCA website. The name should not be identical or similar to any existing company and must comply with the Companies (Name Availability) Rules.

Step4. Drafting Memorandum of Association (MoA) and Articles of Association (AoA)

1. The MoA defines the objectives and scope of the business, while the AoA outlines the internal governance and operational rules of the subsidiary. These documents are crucial for the incorporation process.

Step5. File Incorporation Application (Form SPICe+)

File the incorporation form SPICe+ (Simplified Proforma for Incorporating a Company Electronically) with the MCA. This single application form allows the applicant to:

1. Incorporate the company.

2. Obtain the company’s PAN and TAN.

3. Register for GST, EPFO, ESIC (if applicable).

Along with the SPICe+ form, submit supporting documents like MoA, AoA, and the DSCs of the directors.

Step6. Obtain Certificate of Incorporation

1. Upon approval, the Registrar of Companies (RoC) issues the Certificate of Incorporation, which certifies the legal existence of the subsidiary. This document includes the Corporate Identification Number (CIN), the company’s legal name, and the date of incorporation.

What are the post Registration Compliances for Indian Subsidiary?

Open a Bank Account

Once the subsidiary is incorporated, the company must open a local bank account in India. This account is essential for conducting financial transactions and will be required for compliance with tax regulations and foreign exchange laws.

Foreign Investment Reporting

If the subsidiary involves foreign direct investment (FDI), the company must report the investment to the Reserve Bank of India (RBI) within 30 days of receiving the funds under the Foreign Exchange Management Act (FEMA).

Annual Return Filing

The company is required to file its annual returns.The annual return provides details about the company’s shareholding structure, management, and other statutory information.

Income Tax Returns

Corporate Tax Filing: The subsidiary must file its income tax returns annually, typically by September 30th if the audit is required. Corporate tax rates vary depending on turnover and industry, and the subsidiary must ensure timely payment of advance taxes and filing returns.

Other Sector-Specific Compliance

Depending on the nature of the business, the subsidiary may have to comply with sector-specific laws, such as the regulations set by the Securities and Exchange Board of India (SEBI) for financial companies or the Telecom Regulatory Authority of India (TRAI) for telecom companies.

What are the Disadvantages of Indian Subsidiary?

a. Initial Setup Costs:

Establishing a subsidiary involves initial setup costs and ongoing compliance expenses.

b. Complexity in Management:

Operating in a foreign jurisdiction may present management challenges.

c. Compliance Requirements:

Must adhere to local regulations, which may be different from the parent company's home country.

d. Repatriation of Profits:

Restrictions may apply to repatriating profits back to the parent company.

How can JKstartup360 help with registeration?

Establishing an Indian subsidiary can be a complex process, involving regulatory compliance, documentation, and local governance. JKStartup360 specializes in simplifying this journey by offering end-to-end support, from obtaining necessary approvals like DSCs and DINs to registering the company through SPICe+ forms. Our expertise ensures seamless navigation through FDI guidelines, tax obligations, and sector-specific regulations. Additionally, we assist in drafting MoA and AoA, securing name approvals, and setting up compliant banking and reporting structures. With JKStartup360, businesses can focus on operations while we handle the intricacies of compliance, making India entry smooth and stress-free.