Overview
A Subsidiary Company is a company where another company, typically referred to as the parent company, holds a controlling stake. In India, a company is considered a subsidiary if the parent company owns more than 50% of its equity shares. A Foreign Subsidiary is a type of subsidiary where the parent company is incorporated outside India, and it operates as a separate legal entity within the country. Establishing a subsidiary or foreign subsidiary allows multinational corporations to expand their operations in India, benefiting from local market knowledge while retaining control over their international business strategies. These companies enjoy the advantages of limited liability, separate legal identity, and the ability to operate under the parent company’s guidance. At Legal Corner, we guide you through the complexities of setting up a subsidiary or foreign subsidiary, ensuring full compliance with Indian regulations and helping you establish a robust presence in the Indian market.
Eligibility
- Parent Company Ownership:
For a company to be recognized as a subsidiary, the parent company must own more than 50% of its equity shares. This ownership gives the parent company the power to control the subsidiary’s management and operations. - Indian Entity Requirement:
The subsidiary or foreign subsidiary must be registered as an Indian entity under the Companies Act, 2013. This ensures that the company operates within the legal framework of India. - Minimum Directors:
A subsidiary company must have a minimum of 2 directors, and at least one of them must be an Indian resident. This requirement ensures that the company has local representation in its management. - Registered Office:
The subsidiary must have a registered office in India, which serves as its official address for all legal and regulatory communications. - Foreign Ownership Compliance:
For foreign subsidiaries, compliance with India’s Foreign Direct Investment (FDI) policies is essential. The level of foreign ownership and the sector in which the subsidiary operates must align with FDI guidelines.
Benefits
- Market Expansion:
Establishing a subsidiary or foreign subsidiary allows parent companies to enter and operate in new markets, leveraging local expertise and networks to grow their business. - Limited Liability:
The liability of the parent company is limited to the extent of its shareholding in the subsidiary, protecting the parent company’s assets from risks associated with the subsidiary’s operations. - Operational Flexibility:
Subsidiaries have the autonomy to operate independently, allowing them to adapt quickly to local market conditions while still benefiting from the parent company’s resources and support. - Tax Efficiency:
Subsidiaries may benefit from favorable tax treaties and incentives available in India, potentially reducing the overall tax burden on the parent company. - Brand Presence:
Establishing a subsidiary enhances the parent company’s brand presence in the Indian market, increasing brand recognition and customer trust.
Procedure
- Obtain Digital Signature Certificate (DSC):
The first step is to obtain a DSC for the proposed directors, enabling them to sign electronic documents securely and in compliance with Indian legal standards. - Apply for Director Identification Number (DIN):
Each director must apply for a DIN, which is required for their legal recognition as directors of the subsidiary or foreign subsidiary. - Name Reservation:
File an application to reserve a unique name for the subsidiary, ensuring it complies with the naming guidelines under the Companies Act, 2013, and does not conflict with existing trademarks. - Draft the Memorandum of Association (MOA) and Articles of Association (AOA):
Prepare the MOA and AOA, which outline the subsidiary’s objectives, governance structure, and operational guidelines, and file them with the Registrar of Companies (ROC). - File Incorporation Forms:
Submit Form INC-32 (SPICe) along with the MOA, AOA, and other necessary documents to the ROC for approval, officially registering the subsidiary as a legal entity in India. - Compliance with FDI Regulations:
For foreign subsidiaries, ensure compliance with FDI regulations, including reporting the investment to the Reserve Bank of India (RBI) and obtaining necessary approvals if required. - Obtain Certificate of Incorporation:
Once the ROC approves the application, it will issue the Certificate of Incorporation, formally recognizing the subsidiary as a legal entity in India. - Post-Incorporation Compliance:
After incorporation, ensure ongoing compliance with Indian regulations, including tax registrations, filing annual returns, and adhering to sector-specific laws.
Why Legal Corner
- Expert Knowledge of Indian Regulations:
Legal Corner has extensive experience in setting up subsidiaries and foreign subsidiaries, ensuring that your company meets all Indian legal and regulatory requirements. - Comprehensive Service Offering:
We provide end-to-end services, from incorporation to ongoing compliance, making the entire process smooth and hassle-free for your business. - Customized Solutions:
Our approach is tailored to your specific business needs, ensuring that your subsidiary or foreign subsidiary is structured for success and aligns with your strategic objectives. - Strategic Market Entry:
We offer strategic advice on market entry, helping you navigate the complexities of the Indian market and establish a strong foothold for your business. - Reliable Ongoing Support:
Beyond registration, Legal Corner offers continuous support for all compliance, legal, and operational needs, ensuring your subsidiary remains compliant and successful in the long term.
FAQ
What is a Subsidiary Company?
A Subsidiary Company is a company where another company, known as the parent company, holds more than 50% of its equity shares, giving the parent company control over the subsidiary’s management and operations.
What is the difference between a Subsidiary and a Foreign Subsidiary?
A Subsidiary is an entity where the parent company is based within the same country. A Foreign Subsidiary, however, is an entity where the parent company is incorporated outside the country, such as an Indian company owned by a foreign corporation.
What are the benefits of setting up a Subsidiary in India?
Benefits include access to the Indian market, limited liability protection, operational flexibility, potential tax benefits, and the ability to leverage local expertise while maintaining control over business operations.
What are the eligibility requirements to establish a Subsidiary or Foreign Subsidiary in India?
The parent company must hold more than 50% of the equity shares, the subsidiary must be registered under the Companies Act, 2013, and it must have a minimum of 2 directors, with at least one being an Indian resident.
How is the liability of the parent company limited in a Subsidiary?
The parent company’s liability is limited to the extent of its investment in the subsidiary. This means the parent company’s assets are protected from any liabilities or debts incurred by the subsidiary.
What are the key compliance requirements for a Foreign Subsidiary in India?
Compliance includes adhering to Indian FDI regulations, filing annual returns, maintaining financial records, and ensuring compliance with sector-specific laws. Additionally, reporting investments to the Reserve Bank of India (RBI) is required.
How long does it take to set up a Subsidiary or Foreign Subsidiary in India?
The process typically takes 4-6 weeks, depending on the completion and submission of required documents and approvals from the Registrar of Companies (ROC).
Can a Foreign Subsidiary repatriate profits to its parent company?
Yes, a Foreign Subsidiary can repatriate profits to its parent company, subject to compliance with Indian tax laws and Foreign Exchange Management Act (FEMA) regulations.
What sectors allow 100% foreign ownership in an Indian Subsidiary?
India allows 100% foreign ownership in several sectors, including manufacturing, IT services, and e-commerce, subject to FDI policy regulations. Certain sectors, however, have restrictions or require government approval.
Why should I choose Legal Corner for setting up my Subsidiary or Foreign Subsidiary in India?
Legal Corner provides expert guidance, ensuring full compliance with Indian laws. We handle the entire process from incorporation to ongoing compliance, offering tailored solutions and strategic advice to help your subsidiary succeed in the Indian market.