How can you set up a wholly-owned subsidiary?

We walk you through the process of forming a wholly-owned subsidiary company in India and point out essential compliance requirements.

In India, a business can be formed as either a private limited or a public limited company. A private limited corporation is owned by a small group of people. A public limited company is one in which the majority of the firm’s shares are held by the general public, and it is subject to a slew of rules and regulations imposed by the Companies Act of 2013. The establishing of a wholly-owned subsidiary in India is generally preferred by foreign corporations.

What does it mean to have a wholly-owned subsidiary company?

A wholly-owned subsidiary company is incorporated under the Companies Act of 2013, and in which the parent firm owns 100% of the stock. In other terms, a wholly-owned subsidiary firm is one in which another Indian or international corporation owns the entire share capital.

Requirements for establishing a foreign company’s WOS in India

  • A minimum of two directors are required to register the Indian subsidiary company, with at least one of the directors being an Indian citizen and resident.

  • There must be a minimum of two shareholders. As a result, one nominee shareholder will hold the holding company’s shares on behalf of the holding company to meet the stated criteria. The residence status of stockholders is not a requirement. Individuals, entities, or a combination of both can be shareholders.

Procedure for forming a wholly-owned subsidiary

Step 1: To apply for a Digital Signature Certificate(DSC)

All of the company’s directors must receive class-3, which necessitates the following information and documents:

1. Photograph of the aspiring director

2. Proposed director’s photo ID proof

For foreign nationals, a copy of their passport that has been notarized and apostilled is required.

Voter ID, driver’s license, passport, and PAN are required for Indian citizens.

3. Address the prospective director’s proof:

Notarized and apostilled copy of current month’s telephone bill, mobile bill, electricity bill, or latest bank statement for foreign nationals

Telephone bill, mobile bill, electricity bill, or bank statement for Indian nationals (not older than two months)

4. Email address and phone number in India

Step 2: Apply for the proposed company’s name to be reserved.

To reserve, you must fill out SPICe+ Form Part A. At any given time, two names can be filed. The name is reserved for 20 days after it is granted, but it can be extended for another 40 or 60 days by filing an extension application.

When requesting for the name reservation of its WOS, a foreign firm can use its whole name or a portion of it followed by (Pvt. Ltd.).

If a foreign firm wishes to use its name as the name of a WOS in India, the foreign company must approve a resolution to that effect, which must be submitted with the application for name reservation.

Documents needed to apply to a name reservation

  • The foreign company’s resolution (duly apostilled)

  • The foreign company’s charter (MOA) (duly apostilled)

  • The foreign company’s NOC to use its name (duly apostilled)

  • If a foreign corporation has a trademark, a copy of the trademark registration certificate should be provided (duly apostilled)

Step 3: Establishing a wholly-owned subsidiary

For registration of the proposed WOS, Form Spice+ Part B and C must be filed on the Ministry of Corporate Affairs (MCA) website.

The following are the services available through the aforesaid form:

  • The Company’s Incorporation

  • Allotment of a Director Identification Number (DIN)

  • The company’s Permanent Account Number (PAN) is issued.

  • The company’s Tax Collection Account Number (TAN) is issued.

  • Registration with the Social Security Administration

  • Tax registration for professions (Maharashtra)

  • Choosing a Bank Account

  • Registration for Goods and Services Tax

Documents that must be notarized and apostilled to receive the aforesaid services

1. A copy of the resolution passed by the board of directors of the Foreign Company, which includes the following information:

  • Authorized representative’s name and designation

  • The company’s proposed financing structure

  • Details of Subscribers/Investors

  • Details on the proposed directors

2. Authorized representative’s identification; a passport is required if the person is a non-resident.

3. Directors’ identification and address evidence

4. A copy of the foreign holding company’s certificate of registration, charter (MOA), and articles of incorporation

5. Information/particulars of the nominee of a foreign company’s stake

6. Company’s business activity/object, as well as subscriber sheet

7. The company’s articles/bylaws, as well as a subscriber sheet

The following documents do not need to be notarized or apostilled.

  • Proof of the location in India where the company’s registered office will be located, such as a lease deed/rent agreement/NOC from the property owner if the property is leased for the company’s registered office.

  • A copy of the registered office’s utility bill that is no more than two months old.

The MCA will register the WOS and provide a Certificate of Incorporation as well as a CIN (Corporate Identification Number) after validating all of the facts and papers.

Step 4: Compliance after incorporation

First board meeting: Within 30 days of the company’s incorporation, the board of directors must hold its first meeting.

Company’s First Auditor: The company’s first auditor shall be appointed by the board of directors within 30 days of incorporation and shall serve until the conclusion of the company’s first shareholder meeting, which is required to be held yearly.

Declaration of commencement of business: After opening a bank account and before starting any business operations, subscribers must deposit the subscription money as agreed and given in the company’s Memorandum of Association. The firm must file a Declaration of Commencement of Business with the Registrar of Companies (ROC) in form INC-20A within 180 days of its incorporation, demonstrating that the subscribers have deposited the subscription money in the company’s bank account. The corporation cannot begin any business operations unless the declaration of commencement is submitted with the ROC.

Display Board: Outside every office or site where it does business, companies are required to paint or affix the name of the firm, registered office address, Corporate Identification Number (CIN), contact details, Goods and Services Tax Identification Number (if any), and other information.

Share certificates: The firm must approve the format of the company’s share certificates. And send the same message to your subscribers.

Statutory Register: All firms are required to keep statutory registers for the company, such as a list of members, directors, and key management staff, charges, and so on. The statutory registers must be updated regularly and preserved at the company’s registered office. These registers, however, can now be kept electronically.

Obtaining permits required for the operation of a business: Depending on the nature of the business, the company may be necessary to get licenses and registrations from various government agencies, including those relating to the Shop Act License, Goods and Service Tax, Professional Tax, Importer Exporter Code, Start-up, and so on. In its initial board meeting, the firm permits any director or other signatory to get such registrations.

RBI compliance  For FDI received in India

Any contribution of money to the company by a foreign citizen is termed foreign direct investment (FDI), and the newly incorporated company in India must comply with RBI regulations. It entails the following procedures:

  • Remittance of subscription funds to an Indian bank account from a bank account in a foreign nation. Obtaining the remitter bank’s Foreign Inward Remittance Certificate (FIRC) and Know Your Customer (KYC) paperwork.

  • The subscriber receives his or her shares.

  • Within 30 days of the date of allotment, submit a Form FC-GPR to the concerned AD bank, and follow up with the bank regularly.

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