With India on the verge of becoming a multi-trillion-dollar economy, its rapid economic growth and expanding market are increasingly attracting global companies. The country’s thriving consumer base, digital transformation, and progressive policies make it an ideal destination for foreign businesses looking to establish a strong foothold.
In Order to Incorporate a Subsidiary in India, the following steps are required –
- Choose the Type of Entity
- Determine whether the entity will be a wholly-owned subsidiary, joint venture, branch office or liaison office in India. A Private limited company is generally preferred by Companies looking to establish a long term business in India.
- Capital Structure and Funding
- It is essential to seek expert advice on the optimal capital structure and funding methods for Indian operations, including equity, debt, and internal accruals, while considering regulatory compliance for capital infusion and profit repatriation.
- Foreign Direct Investment (FDI) Compliance
- It must be determined that the business activity is eligible for 100% FDI under the automatic route else it may require government approval, particularly in sectors with restrictions on foreign ownership.
- Name Reservation
- The proposed name of the Company must adhere to the Companies Incorporation Rules, 2014.
- Reserve the company’s name using the RUN (Reserve Unique Name) service provided by the Ministry of Corporate Affairs (MCA).
- An existing trademark cannot be registered as a name of the Company.
- Digital Signature Certificates (DSC)
- A minimum of two directors are required for a Private Limited Company.
- – Foreign directors need to obtain DSCs, which are mandatory for e-filing incorporation documents with the MCA.
- Director Identification Number (DIN)
- – Only after obtaining DSC can the director apply to become a director by applying for DIN.
- Drafting the Memorandum and Articles of Association
- Draft the Memorandum of Association (MoA) and Articles of Association (AoA) with clearly defined objects that specify the purpose of the company. Amendments to these documents post-incorporation can be challenging with several rules involved.
- Resident Indian Director
- The law mandates that at least one director must be a resident of India, meaning they have stayed in India for a minimum of 182 days during the previous calendar year.
- Incorporation Documents and Filing
- File the incorporation documents, including the SPICe+ form, with the MCA, submitting the MoA, AoA, and other necessary documents.
POST INCORPORATION COMPLIANCES
- Conducting the First Board Meeting
- A Board Meeting has to be conducted within 30 days wherein certain actions of the company would be confirmed. Approvals for opening a Bank Account, an auditor has to be appointed in the meeting.
- Opening a Bank Account
- Open a bank account in the subsidiary’s name for receiving initial capital and conducting business transactions.
- Share Certificates and Stamping
- Issue share certificates to shareholders post-incorporation and ensure they are duly stamped as required under the Stamp Act.
- Foreign Investment Reporting
- Report the foreign investment to the Reserve Bank of India (RBI) within the stipulated time frame, typically within 30 days of receiving the share subscription money.
- Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN)
- Apply for PAN and TAN for the subsidiary, necessary for tax and compliance purposes.
- Applying for Goods and Service Tax
- Register for GST only if the subsidiary’s turnover exceeds ₹20 lakh or if it engages in inter-state supply of goods/services.
- Shops and Establishments Certificate
- Obtain the Shops and Establishments certificate, which is mandatory for most commercial establishments operating in India.
- Professional Tax Registration
- Register under Professional Tax, a state-level tax that applies to employees and businesses.
- Compliance with Sector-Specific Regulations
- Ensure that the subsidiary complies with any industry-specific regulations and secures necessary approvals.
Incorporating a subsidiary in India involves careful navigation through various legal and regulatory processes and good foundation makes a good company.