Indian Subsidiary Company Registration

Establishing a subsidiary in India could be the turning point of the expansion of your business operations and the entry of one of the largest and most versatile markets in the world. As a foreign parent company wishing to set up a local company or a multinational wishing to further entrench its presence in India this guide is a clear end-to-end guide on how to register a subsidiary company in India.

What is a Subsidiary Company?

According to the Indian law, a subsidiary company is a company where another company (the parent company or the holding company) exerts control. The controlling company may:

• Manage the membership of the board of directors; or

• Control over a majority of the total number of voting power; or

• Own by itself or jointly with one or more of its subsidiaries, over 50 percent of the nominal value of the equity share capital.(In the meaning of Companies Act, 2013, Section 2(87).)

Within the foreign-investment setting:

• A wholly owned subsidiary is in which the parent company owns 100 percent shares (not prohibited in sectors that permit 100 percent FDI).

• The subsidiary company in general can have 50% percent and above shareholding by the parent, depending on the industry.

Why Set Up an Indian Subsidiary?

• Access to the Indian Market: India is a very rapidly expanding large economy, which has a huge consumer base and a strategic location to produce, sell services and goods.

• Limited Liability: The subsidiary is a separate and independent legal entity. The liability of the shareholders is restricted to share capital only.

• Separate Legal Identity: This company is a subsidiary one, and it is not the same as the parent. It is able to make contracts, own property, sue and be sued under its name.

• Credibility & Local Presence: The fact that an entity is registered in India, assists with bank accounts, contracts, hiring, regulatory compliance and perception in the local market.

• Ownership Flexibility: In numerous sectors foreign direct investment (FDI) in the form of 100 percent through the automatic route is allowed; though in certain sectors there are limitations and prior approvals required.
  

• Scope of Diversification: The subsidiary model permits a parent company to diversify into related or new business lines in India while maintaining control.

Regulatory Authorities & Legal Framework

The most important laws and regulatory authorities that you should know about:

• MCA governs company incorporation, the governance, filings under Companies Act.

• In each state, the registration, approval, filings and compliance of companies are done in the Registrar of Companies (ROC) offices.

• Reserve Bank of India (RBI) controls foreign investment / foreign exchange (FEMA) regulations of the foreign owned subsidiaries.

• The primary legislative acts:
  
  

Key Facts & Requirements for an Indian Subsidiary

The following are the necessities that you need to consider when registering a subsidiary company in India:

• Company Name: It should be original and not similar to or identical with another company operating. It should be in accordance with MCA naming rules.

• Shareholders: The parent company (foreign) may control 1 hundred percent of the share capital, subject to the sectoral FDI regulations. A minimum of two shareholders are demanded (in a private company).

• Directors: Two directors are required, at least one of them should be an Indian resident (i.e. a resident of India and has already spent at least 120 days in the preceding calendar year).

• Registered Office Address: The firm should have a physical registered office in India. Virtually offices might be employed, in case they are permissible and documents are accepted.

• Share Capital / Paid-up Capital: Under Companies Act, there is no stipulated minimum capital required to be paid up by a private company. Authorised capital, however, can have an effect on the stamp, professional fees, and bank/investor expectations.

• Type of Company: A subsidiary is usually registered under a Private Limited Company. The rules of public companies are more burdensome (minimum share capital, more shareholders).

• Sector & FDI Route: In case the business activity falls under a sector that is restricted or needs Government permission, then you will have to abide by prior-approval, sectoral cap or automatic route regulations.

• Compliance Obligations: Annual filings, Board meetings, Audits, director KYC etc. should be scheduled at the very beginning.

Step-by-Step Process to Register a Subsidiary Company in India

The steps that a common process of registering a foreign owned subsidiary in India follows is as below:

• Obtain Digital Signature Certificate (DSC) : Given that incorporation filings are done on the internet, any proposed director must have a DSC to make such filings electronically.

• Apply for Director Identification Number (DIN) : All the directors proposed should be issued a DIN (unless one has) through the portal on MCA.

• Name Reservation : Suggest a company name (s), name application by using the service of MCA, RUN or SPICe + Part A. Wait until the name is approved.

• Drafting Memorandum of Association (MoA) & Articles of Association (AoA) : These documents should be prepared in line with the Companies Act 2013. They determine company objectives, regulations, share capital, internal governance.

• File Incorporation Documents : Apply to incorporate Company Electronically by filling out SPICe+ (Simplified Proforma to Incorporate Company Electronically Plus) form Part B (that includes some of the services: incorporation, DIN allocation, PAN & TAN application, optionally GST registration etc). Attach MoA, AoA, director/shareholder forms, address proof of registered office, identity/address proof directors/shareholders also.

• Pay Government Fees / Stamp Duty : The registration fees are dependent on the authorised share capital, state of registration (stamp duty can differ by state) and government filing fees.

• Obtain Certificate of Incorporation (COI) : After the verification of documents and the incorporation is approved by ROC, a Certificate of Incorporation is issued and a company is formed.

• Apply for PAN & TAN : After incorporation, apply for Corporate PAN (Permanent Account Number) and TAN (Tax Deduction and Collection Account Number) from the Income Tax Department (often integrated through SPICe+).

• Open Bank Account : Open a bank account in India under the name of a subsidiary company. Needed in terms of capital infusion, operations, transactions.

• Foreign Investment Reporting / RBI Compliances : The parent company is foreign and therefore you are required to take care of foreign investment requirements: infusion of share capital by foreign parent, reporting to authorised dealer bank, filing Form FC-GPR (where applicable) with RBI/AD bank and other FEMA requirements.

• Commencement of Operations : The subsidiary is then able to start its business operation after incorporation, bank account and other required registrations (GST, where applicable).

Advantages of Registering an Indian Subsidiary

The main advantages of establishment of a subsidiary in India include:

• Market Access: Penetration into the large and diversified and expanding Indian market.

• Separate Legal Entity: The subsidiary is a separate legal person that assists in contracts, ownership of property, employment, and management of liabilities.

• Limited Liability: Shareholders are not beyond law safeguarded- the investment of the shareholder in the company is limited to the share.

• Perpetual Succession: The company will also survive regardless of the ownership, management or shareholding change.

• Diversification: Potential of foreign firms to diversify their operations into India manufacturing, services, exports, R&D -benefiting on the Indian ecosystem.

• Credibility & Local Footprint: The local incorporated company is commonly perceived much better by the clients, by the banks, by the suppliers and by the regulators as compared to a non-resident branch.

Taxation & Compliance – What to Know

Taxation

• In India, businesses are taxed according to the Income Tax Act on their international income (with provisions).

• Domestic corporate tax rates on companies are around 25 percent on some of the turnovers, including surcharge and cess layers. As an illustration a tax rate of 2% on income between 1 crore and 10 crores; 5 percent on income above 10 crore. There is a cess of health and education of 4 percent.

• GST (Goods and services tax) is imposed on domesticity of goods and services. Registration obligation and returns have to be followed.

• Transfer-pricing laws work in the case of inter-company transactions (between a parent and subsidiary).

• Dividends, royalties, technical fees could be subject to certain withholding tax rate and double tax avoidance treaties.

Compliance

Major compliance issues of a company in India:

• Statutory appointment of accounts and auditor (within schedule).

• File annual financial statements (Form AOC-4) and annual return (Form MGT-7) with the ROC.

• Conduct at least one Annual General Meeting (AGM) and requisite Board Meetings (as per Companies Act).

• Keep statutory records (registers, minutes, etc.).

• Director KYC/DIN e-KYC (DIR-3 KYC) on an annual basis.

• Report foreign investment, share structure changes, capital infusion as required under FEMA and SIA/FC- GPR forms, where the foreign owned.

• Adhere to the other laws relating to business (labour laws, GST, PF/ESI, etc).

• Nonconformity may result in penalties, disqualification of directors, fines or criminal charges.

FDI (Foreign Direct Investment) Aspects

• The majority of industries allow 100% FDI through automatic route (no Government confirmation required). Nevertheless, there are certain industries that the Government should approve or can own.

• In industries where there is the need to get a license: e.g., print media, mining, private security agencies, air transport, broadcast, pharmaceuticals etc.

• The foreign parent company has to invest its capital in a form of permitted mode (equity shares, convertible instruments where applicable) and submit the report to RBI/AD bank according to the provisions.

• One should revise the recent FDI policy (published by Government of India) and industry-specific guidelines.

Timeline & Indicative Costs

• Registration (incorporation process) is more or less online through SPICe+. Under normal conditions it is likely to take about 7-15 business days (including the situation when all the documents are in order and approvals are easy).

• The costs differ across states, authorised capital, professional fees and are required sector/FDI approvals.

• Other than government fees/ stamp duty, you must include DSCs, DINs, professional/legal/consulting, foreign investment filings, compliance establishment.

Post-Incorporation Checklist

After registration of the subsidiary, make sure that the following are covered:

• Convene the first board meeting and take minutes.

• Open bank account, inject capital, parent issue share-subscription.

• Where necessary, submit foreign investment forms ( FC-GPR etc) with AD bank/RBI.

• Register for GST (if turnover or activity mandates).

• Establish statutory books, books of registration, minute books, share- transfer books.

• Make sure auditors are appointed and accounting systems set.

• Stakeholder compliance (board meetings, AGM, annual filings, tax filings).

• Check employment/human resources establishment, labour law registrations, PF/ESI etc, where necessary.

• Draft company secretarial compliance policies (e.g. transfer pricing, company secretarial policies).

• Take into consideration transfer price and parent/ subsidiary inter company agreements.

Common Pitfalls & How to Avoid Them

• Choosing a business activity that isn’t allowed under automatic FDI route or fails sectoral investment limits. Always check the latest FDI policy.

• Failing to appoint an Indian-resident director: non-compliance may cause regulatory trouble.

• Not securing a proper registered office address (proof of address must be provided).

• Ignoring foreign investment filings under FEMA (infusion of funds, share-subscription, repatriation) – this may trigger penalties.

• Underestimating the ongoing compliance burden (annual filings, audits, KYC, board minutes) – the “setup” is only half the job.

• Using a template MoA/AoA without tailoring to shareholding, cross-border transactions, and regulatory framework of parent–subsidiary.

• Overlooking tax & transfer pricing implications of inter-company transactions with the parent.

How We (or Your Service Partner) Can Help

An excellent service partner will help you with each step that is critical:

• Search and approval of names.

• MoA and AoA preparation made in foreign parent structure.

• Acquisition of directors DSCs and DINs.

• Application to incorporate (SPICe+).

• Assistance with bank account opening.

• Foreign investment compliance (AD bank filings, FC-GPR etc).

• Time after incorporation compliance package (auditor appointment, secretarial records, annual filings, tax filings).

• Consulting in the area of sectoral FDI restrictions, inter-corporate treaties, transfer-pricing, and repatriation.

Conclusion

The establishment of a subsidiary company in India is a good option by the foreign firms to have local presence in India, enjoy the growth story of India and also have an Indian legal entity structure. This is done through online systems (SPICe+ etc) and the problems are in proper structuring (shareholding, sectoral FDI), compliance to foreign-investment norms, and continued compliance. A good Indian subsidiary that is planned and executed correctly can become a powerful growth engine.

Disclaimer

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