A sister company, also known as a subsidiary, is under the control of a parent company or holding company. The parent company possesses the authority to govern the subsidiary, whether partially or wholly. In India, the procedure for Indian Subsidiary Registration follows the guidelines of the Companies Act of 2013. As per this act, a subsidiary is characterized by a foreign corporate body or parent entity holding at least 50% of the total share capital. Essentially, the parent company wields substantial influence and control over the subsidiary.
Advantages of Indian Subsidiary Registration
Indian Subsidiary Registration in India comes with numerous compelling advantages:
1: Entry into the Indian Market: India’s competitive business landscape offers a multitude of investment opportunities that attract foreign entrepreneurs to establish their subsidiary companies in the country.
2: Foreign Direct Investment (FDI) in India: FDI involves investments by foreign companies in Indian private enterprises through share subscriptions or acquisitions. In 2020, the Indian government mandated prior approval for investments from countries sharing a border with India, making the registration of Indian subsidiaries an appealing option for foreign investors.
3: Perpetual Succession: The concept of perpetual succession ensures that a company’s existence remains unaffected by events such as changes in management, transfers of membership, or insolvency. The company operates seamlessly, providing stability and continuity.
4: Limited Liability: Limited liability is a significant advantage that encourages individuals to choose company formation. This principle extends to Indian subsidiary companies, safeguarding the personal assets of shareholders and directors. The company bears responsibility for its debts to third parties, shielding the personal assets of its stakeholders.
5: Scope of Diversification: Establishing an Indian subsidiary company provides a strategic avenue for foreign businesses to expand operations, contributing to the growth of the Indian economy. It also introduces a variety of goods and services, fostering healthy competition.
6: Separate Legal Identity: According to the Companies Act, a company is recognized as a distinct legal entity separate from its shareholders and directors. This legal status empowers the company to engage in agreements with other entities, initiate legal actions, and respond to allegations before the judicial system in its own name.
7: Property Ownership and Rental: As a legal entity, a subsidiary company has the authority and right to purchase or rent properties in India for its business activities. Acquiring such properties in the company’s name aligns with the principle of perpetual succession and helps prevent potential conflicts among company members.
Regulatory Authorities for Indian Subsidiary Registration
Complementing this regulatory structure is the indispensable role played by the Reserve Bank of India (RBI), which assumes a pivotal position in regulating the foreign currency exchange aspects pertinent to Indian subsidiary companies. The RBI’s vigilant oversight is instrumental in ensuring the meticulous adherence of these companies to the intricate financial regulations in place. This extends to overseeing foreign investments, acquisitions, and transactions, safeguarding the financial integrity of Indian subsidiary companies and upholding the overall stability of the financial ecosystem.
In essence, this collaborative triad of the Ministry of Corporate Affairs, Registrar of Companies, and Reserve Bank of India establishes a robust and comprehensive regulatory framework that not only facilitates the seamless registration and functioning of companies in India but also guarantees the strict adherence to legal and financial norms, thereby fostering an environment of transparency, accountability, and financial prudence within the corporate sector.
Requirements and Key Facts about Company Registration in India
Company Name:
- Selecting a unique and distinct name for your business is paramount. The chosen name must stand apart from existing businesses’ names or trademarks.
Shareholders:
- The parent company can hold 100% of the shares, or a combination of two foreign nationals can serve as shareholders. Notably, there is no mandatory requirement for an Indian resident to be a shareholder.
Share Capital:
- India does not impose a minimum capital requirement for company registration, providing flexibility for businesses in determining their capital structure.
Directors:
- A minimum of two directors is mandatory, with at least one director being an Indian resident. Additionally, nominee directorship services can be availed if needed.
Registered Address:
- Every company in India must have a registered address officially recorded in government records. Virtual office address services are available to fulfill this requirement efficiently.
Annual General Meeting (AGM):
- As per the Companies Act, every Indian company must conduct at least one annual general meeting, in addition to two board meetings within the year.
Company Secretary:
- The mandatory filing of three secretarial returns annually is overseen by a company secretary.
In terms of taxation, companies in India encounter the following considerations:
Professional and Government Fees:
- The incurrence of professional fees, including government fees for the registration process.
Profit Tax Rate:
- Post-incorporation, companies are subjected to a profit tax rate of approximately 25.36%.
GST (Goods and Services Tax):
- Applicability to domestic sales, with monthly GST returns and an annual tax return mandated.
Ensuring compliance with India’s unique requirements is crucial, encompassing:
Annual Compliance:
- Mandatory statutory audits, even for smaller companies, necessitate the appointment of a statutory auditor and the submission of annual filings.
Navigating these multifaceted requirements is indispensable for the successful establishment and operation of a company in India, aligning with the stipulations of the Companies Act of 2013.
Procedure for Indian Subsidiary Registration
Determine the Type of Company: Decide on the specific type of subsidiary company you intend to establish.
Obtain a Digital Signature Certificate (DSC): Since the registration process is conducted online, secure a Digital Signature Certificate (DSC) for the proposed directors of the company. This certificate is essential for electronically signing the necessary documents during the registration process.
Apply for Director Identification Number (DIN): Directors of the subsidiary company must obtain a Director Identification Number (DIN) from the Ministry of Corporate Affairs (MCA). This is achieved by submitting the DIN application online.
Name Approval: Choose a distinctive name for your subsidiary company and apply for its approval through the MCA’s online portal. Ensure that the chosen name complies with the naming guidelines provided by the MCA.
Draft Memorandum of Association (MoA) and Articles of Association (AoA): Prepare the legal documents, MoA and AoA, which delineate the company’s objectives, rules, and regulations, following the guidelines of the Companies Act 2013.
File Incorporation Documents: Once the chosen name is approved, file the incorporation documents, including MoA, AoA, and other required forms, with the Registrar of Companies (ROC) through the MCA’s online portal. The SPICe+ form is typically used for the incorporation process on the Ministry of Corporate Affairs portal.
Payment of Registration Fees: Pay the applicable registration fees to the ROC based on the authorized capital of the subsidiary company.
Obtain a Certificate of Incorporation (COI): If all submitted documents and information are in order, the ROC will issue a Certificate of Incorporation, officially confirming the registration of the subsidiary company.
Apply for Permanent Account Number (PAN) and Tax Registration: After obtaining the COI, apply for a Permanent Account Number and a Tax Deduction and Collection Account Number from the Income Tax Department for the subsidiary company.
Open Bank Account: Conclude the process by opening a bank account in the name of the subsidiary company in India.
Compliance with Other Regulations: Apart from the company registration process, ensure compliance with other relevant regulations.
Obtain a GST Number: Goods and Services Tax (GST) registration is required after completing the aforementioned steps, particularly if the company engages in various business activities. Every Indian company must apply for a GST number for taxation purposes.
Initiating Business Operations: Once all the preceding steps are completed, the subsidiary company can commence its business operations. This marks the culmination of the comprehensive process of registering and initiating operations for an Indian subsidiary company.