There is a lot of interest among foreign companies to start their business in India and tap into one of the fastest growing markets. Indian subsidiary is a form of business entity in which the firm is owned by a foreign-owned enterprise in other words firm is owned by a foreign entity i.e. 50% of shares are owned by a foreign firm. A foreign National excluding the citizen of Pakistan and Bangladesh or an entity incorporated outside India other than entity incorporated in India and Bangladesh can invest and own a company in India simply by acquiring shares of the company.
It is one of the efficient ways to invest in the Indian subcontinent because the process is not as time-consuming as the other processes also there are very few legal formalities involved in the process. Foreign organizations and firms also prefer this type of investment because they can easily purchase the shares of any firm and as a result can enter the Indian Market easily. On the contrary minimum of one director who is the Indian director and the resident of India are required for incorporation of Indian Company along with the address in India. Acquisition of equity shares and investment of a company can be divided into two categories that are Investment under automatic route and investment under the government approval route.
Foreign investment of up to 100% is allowed under automatic route in most sectors/activities in India Whereas, In Indian subsidiary company, an automated route is not available and can be only with the approval of government under the government approved FDI method.
One of the major advantages given to the foreign companies is that they can save much time as well as cost by purchasing an already established enterprise which also provides the foreign companies with an already established target consumer group and an already established consumer base. Establishing all these takes years of time what foreign entities are getting on the one hand that is why this is one of the major advantages given to them.
Apart from the advantages of the Indian subsidiary company, there are numerous disadvantages too. There is a delay in decision making because the orders have to be given by the parent company whose headquarters may be far from a subsidiary which also results in a lag in communication that further results in interpreting the wrong information to the subsidiary. Nevertheless, it is one of the efficient ways to establish your foot in the Indian subsidiary and also does not involve many legal formalities.
India is now a globally famous destination for doing business in any desired economic field or for a subsidiary company formation. A subsidiary company can be a public limited company, private limited company or a limited liability company. The most popular form of a subsidiary in India is the wholly owned private limited subsidiary. These days, a lot of outside organizations have started to begin their activities in India and make a hold on one of the world's biggest and fast developing business sectors.
Transfer of shares from shareholders to any other person can be made easy by simply filling a share transfer form and handing the same to the buyer.
A subsidiary of a foreign company is a separate legal entity. Therefore, this form of company organization has a wide legal capacity and can own property and also incur debts whereas, not all the directors are liable for the company debts.
The parent can only provide the monetary means and capability to start new companies and products.
One of the major advantages of an Indian subsidiary company is that a subsidiary company gets financial support from the parent company in terms of training employees, funding through share subscription money and another consultancy free of cost or at a very low price which is very difficult in case of a newly established company.
The government of India allowed 100% foreign Investment (FDI) in many sectors through numerous types of business entities without any government approval unlike proprietorship, partnership and LLP which requires prior government approval of FDI.
Indian subsidiary power of decision making is restricted and also it becomes a time-consuming process because every decision has to be discussed with the parent company before reaching the final decision.
Freedom of Indian subsidiary company is also restricted
In the case of an international transaction between the Indian subsidiary and the parent company. Both the establishment cost as well as the compliance cost of Indian subsidiary increases as such transaction will subject to transfer pricing provision and require a compulsory transfer pricing audit as well as filling of Income tax returns of both parent company and Indian subsidiary.
Identity proof of all directors (PAN for Indian director and passport for the foreign director)
Proof of business premises in India and proof of head office (Rental agreement, electricity bill/ legal document/ NOC (NO OBJECTION CERTIFICATE) from the landlord, etc.
Address proof of all directors which includes Aadhar card, Voter ID card for Indian director and driving license, passport, and electricity bill or bank statement of a foreign director.
Signed Indian subsidiary company registration document.
Copy of incorporation certificate issued by respective foreign governments LLC/INC.
1. Obtaining DSC and DIN
DSC (Digital Signature certificate) and DIN (Director Identification number) are required to form the proposed director of Pvt/ltd company. DSC & DIN can be obtained within 5-7 days
2. Name approval
For the name approval minimum of one and a maximum of six names must be submitted to MCA (Ministry of corporate affairs). Approval for the Name of the company can be obtained in 5 to 7 working days.
3. Company incorporation
Incorporation documents can be submitted to MCA (Ministry of corporate affairs) along with an application for incorporation. MCA (Ministry of corporate affairs) will usually approve the incorporation application in 5 to 7 days.
4. Approval for FDI Compliance
After getting the certification of incorporation and verification of all the documents, Opening the bank account with the designated branch as per requirement approval is granted.