Setting Up an Indian Subsidiary of a Foreign Company

Short answer: A foreign company can establish a presence in India by incorporating a wholly-owned subsidiary, typically as a private limited company. This requires at least two directors (one of whom must be an Indian resident), a registered office in India, and adherence to rules set by the Companies Act, 2013, and FEMA. The process involves obtaining Director IDs, reserving a name, and filing incorporation documents with the Ministry of Corporate Affairs (MCA) and reporting to the RBI.

What is an Indian subsidiary company?

An Indian subsidiary is a distinct legal entity incorporated in India, where more than 50% of its share capital is held by a foreign company, known as the parent or holding company. Unlike a branch or liaison office, which are extensions of the foreign parent, a subsidiary has its own legal identity, assets, liabilities, and perpetual existence. This structure insulates the foreign parent from the subsidiary's liabilities, providing a significant legal and financial shield.

Why choose a private limited company for a subsidiary?

It is the most preferred structure for foreign companies entering India due to its scalability, credibility, and protective features. A private limited company offers limited liability, meaning the parent company's assets are not at risk for the subsidiary's debts. It also allows for easy transfer of ownership, raising capital, and entering into contracts in its own name. This structure is viewed favorably by banks, employees, and government authorities, making business operations smoother.

What are the key requirements to register an Indian subsidiary?

To incorporate an Indian subsidiary, a foreign company must meet several foundational requirements mandated by Indian corporate law.

• Directors: A minimum of two directors are required. Critically, at least one director must be a 'resident in India', meaning they have stayed in India for a total period of not less than 182 days during the financial year.
• Shareholders: A minimum of two shareholders are needed. For a wholly-owned subsidiary, the foreign parent company will be the primary shareholder. A second shareholder can be a nominee of the parent company, holding a single share to meet the statutory minimum.
• Share Capital: There is no minimum prescribed capital requirement. However, the initial capital should be sufficient to fund the business plan and meet operational expenses. The capital is brought into India via approved banking channels as Foreign Direct Investment (FDI).
• Registered Office: A physical address in India is mandatory to serve as the official registered office of the company. This address is used for all official communications from government departments.
• Company Name: The proposed name must be unique and not resemble any existing company or registered trademark in India. The name must end with the words "Private Limited".

Indian Subsidiary vs. Branch Office vs. Liaison Office

Choosing the right entry structure is critical. A subsidiary offers the most flexibility, while branch and liaison offices have restricted scopes.

Feature	Wholly-Owned Subsidiary (Pvt Ltd)	Branch Office (BO)	Liaison Office (LO)
Legal Status	Separate Indian legal entity	Extension of foreign parent	Extension of foreign parent
Permitted Activities	Can conduct any business activity (subject to FDI policy)	Can conduct manufacturing and trading activities	Cannot conduct any commercial activity; only liaison work
Liability	Limited to the subsidiary's assets	Unlimited; liability extends to the foreign parent	Unlimited; liability extends to the foreign parent
Repatriation	Profits repatriated as dividends, subject to Dividend Distribution Tax (if any) and TDS	Profits can be repatriated, subject to applicable taxes	Not applicable as no income is generated
Approvals	MCA approval for incorporation; RBI reporting for FDI	RBI/Authorised Dealer Bank approval required	RBI/Authorised Dealer Bank approval required
Compliance	Companies Act, Income Tax Act, GST, FEMA	Companies Act, Income Tax Act, FEMA	Companies Act, Income Tax Act, FEMA

What is the registration process for a foreign subsidiary in India?

The process is streamlined through the MCA's integrated e-form, SPICe+ (Simplified Proforma for Incorporating Company Electronically Plus).

1. Obtain Digital Signature Certificate (DSC): The proposed directors must first obtain a Class-3 DSC, which is used to sign electronic forms.
2. Obtain Director Identification Number (DIN): An application for DIN for the proposed directors is made within the SPICe+ form.
3. Reserve Company Name: File an application in Part A of the SPICe+ form to reserve a unique name for the subsidiary.
4. Draft Constitutional Documents: Prepare the Memorandum of Association (MoA), which defines the company's objectives, and the Articles of Association (AoA), which outline its internal rules. For a foreign subscriber, these documents, along with a board resolution from the parent company, must be notarized and apostilled in the home country.
5. File SPICe+ Form (Part B): This is the main application for incorporation. It combines applications for DIN, PAN, TAN, GSTIN, EPFO, ESIC, and Profession Tax (Karnataka) into a single filing.
6. Receive Certificate of Incorporation: Upon verification, the Registrar of Companies (RoC) issues a Certificate of Incorporation, which is conclusive proof of the company's existence. The PAN and TAN are allotted simultaneously.
7. Post-Incorporation Compliances: Open a corporate bank account and report the foreign investment to the Reserve Bank of India (RBI) by filing Form FCGPR.

Worked example

Let's consider a German software company, 'GlobalLogistik GmbH', wanting to establish a development centre in Bengaluru, India.

• Objective: Set up a wholly-owned subsidiary to hire Indian developers and serve the Asian market.
• Action Plan:
  1. Entity: They decide to form 'GlobalLogistik Solutions India Private Limited'.
  2. Directors: They appoint Mr. Klaus Schmidt (German national) and Ms. Priya Sharma (an Indian resident) as the initial directors.
  3. Capital: They decide on an initial paid-up capital of ₹20,00,000 (approx. €22,000) to cover setup and initial operational costs.
  4. Documentation: GlobalLogistik GmbH passes a Board Resolution in Germany authorizing the incorporation. This resolution, along with their charter documents, are notarized and apostilled as per the Hague Convention.
  5. Incorporation: SP & SC assists them in obtaining DSCs, filing the SPICe+ form, and receiving the Certificate of Incorporation, PAN, and TAN within a few weeks.
  6. FDI Reporting: GlobalLogistik GmbH remits the equivalent of ₹20,00,000 to the newly opened Indian bank account. Within 30 days of receiving this amount, we file Form FCGPR with the RBI on their behalf, reporting the allotment of shares. The company is now fully compliant and operational.

Common mistakes

1. Failing to Appoint a Resident Director: The requirement for at least one director to be resident in India is mandatory and a common oversight.
2. Incorrect Document Legalisation: Documents from the parent company (board resolutions, charter documents) must be correctly notarized and apostilled (or consularized for non-Hague Convention countries). Errors here lead to rejection.
3. Delayed RBI Reporting: Failure to file Form FCGPR within 30 days of allotting shares against foreign remittance can lead to penalties and requires a compounding process with the RBI.
4. Ignoring Post-Incorporation Compliance: Forgetting to hold the first board meeting within 30 days, not appointing a statutory auditor, or missing annual filings like AOC-4 and MGT-7A can attract significant penalties.
5. Bank Account Delays: Delays in opening the bank account can disrupt the timeline for remitting share capital and filing Form FCGPR.

How SP & SC helps

SP & SC Legal and Taxation Services provides end-to-end assistance for foreign companies looking to establish a business in India. We advise on the most suitable entry structure, manage the entire incorporation process, and ensure full compliance with MCA and RBI regulations. Our services include obtaining DSCs and DINs, drafting MoA and AoA, filing all necessary forms, coordinating the apostille process, handling RBI reporting (Form FCGPR), and managing all post-incorporation compliances like statutory filings, tax registrations, and annual returns.

Frequently asked questions

Q1. Can a foreign subsidiary be 100% owned by the parent company?

Yes. A foreign company can set up a wholly-owned subsidiary in India, where it holds 100% of the shares (subject to FDI policy for the specific sector). To meet the legal requirement of two shareholders, one share is typically held by a nominee on behalf of the parent company.

Q2. How long does it take to register an Indian subsidiary?

The entire process, from obtaining DSCs to receiving the Certificate of Incorporation, typically takes 3 to 4 weeks. This timeline is subject to the timely provision of apostilled documents from the parent company and government processing times.

Q3. What is a resident director?

As per the Companies Act, 2013, a resident director is an individual who has stayed in India for a period of not less than 182 days during the financial year. Every company in India must have at least one such director on its board.

Q4. Is there a minimum investment required to start an Indian subsidiary?

There is no statutory minimum capital requirement for a private limited company in India. However, the company must have adequate capital to support its proposed business activities and meet initial expenses. This is detailed in the business plan and considered during the setup phase.

Q5. What is an Apostille?

An Apostille is a certificate that authenticates the origin of a public document (e.g., a board resolution, power of attorney, or certificate of incorporation). It is issued by a designated authority in a country that is a party to the Hague Apostille Convention of 1961. This simplifies the process of document legalisation for use in foreign countries.

Get a fixed-fee quote

Navigating Indian corporate law requires expert guidance. Share your documents with us for a confidential review and a written fixed-fee quote for setting up your Indian subsidiary. Contact SP & SC or WhatsApp us at +91 90356 74566. We handle the entire process end-to-end, from initial strategy to ongoing compliance, ensuring a smooth entry into the Indian market.