Wholly Owned Subsidiaries in India

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Jan. 13 – Foreign companies can set up wholly owned subsidiaries in sectors where 100 percent foreign direct investment is permitted under India’s national FDI policy. For registration and incorporation, a set of applications have to be filed with Registrar of Companies (ROC). Once a company has been duly registered and incorporated as an Indian company, it is subject to Indian laws and regulations as applicable to other domestic Indian companies.

Establishing a Private Limited Company in India

Option 1

  • Incorporate company with foreign directors and shareholders

Option 2

  • Incorporate company in India with Indian directors and shareholders, and after incorporation transfer shares to foreign entities

Foreign investment in India is regulated under the Foreign Exchange Management Act (1999) and is allowed under two routes: namely the “automatic route” and the “approval route.” As per notifications issued by the Reserve Bank of India, 100 percent investment is allowed in sectors covered under the automatic route. For other industries and sectors, caps are defined and government approval is required which involves a separate set of procedures to be followed.

No specifications or sector-specific caps for companies engaged in event management activities have been issued for the purpose of foreign investment in India. However, sector specific guidelines in the media and entertainment industry have been issued by the RBI.

Apart from the sectors for which specific caps have been defined for foreign investment, 100 percent investment is allowed under the automatic route, wherein no specific approval would be required for setting up an entity in India.

Option 1: Incorporation of private limited company with directors and shareholders of foreign origin

Steps involved:

  • Obtaining Director’s Identification Number – online application
  • Obtaining Digital Signature Certificate for at least one of the directors
  • Filing application for name availability with the Registrar of Companies – online check and application
  • Drawing up Memorandum of Association and Articles of Association
  • Having the appropriate persons to subscribe to the memorandum (minimum of two for a private company) and preparation of other forms
  • Submission of all the documents with ROC along with the requisite fee(s) – submitted online
  • Receipt of Certificate of Incorporation – issued online to companies

Estimated time

Option 2: Incorporation of private limited company with directors and shareholders of Indian origin

Steps involved:

  • Filing application for name availability with the Registrar of Companies
  • Drawing up Memorandum of Association and Articles of Association
  • Having the appropriate persons to subscribe to the memorandum (minimum of 2 for a private company) and preparation of other forms
  • Submission of all the documents with ROC along with the requisite fee(s)
  • Receipt of Certificate of Incorporation
  • Transfer of shares to Foreign Entities after incorporation formalities and allotment of shares to initial subscribers is complete
  • Change in Directors after incorporation formalities are complete in full

Estimated time

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5 thoughts on “Wholly Owned Subsidiaries in India

    Anu Sharma says:

    thanks for the wonderful article, quite helpful for us. keep sharing the knowledge. thx…

    Janak Soni says:

    Very good information. But if foreign company wants to set up business by establishing wholly owned subsidiary in india for the promotion of its products ( capital goods) and providing after-sales – service to lndian buyers, is there any criteria about the KYC of foreign company or its directors and required documentation which needs to be submitted to ROC for its scrutiny. It is agreed that setting up of wholly owned subsidiary company by foreign company and its directors is allowed under automatic route, but it does not any way mean that any body from foreign country can apply for registration and get it. There must be some criteria to establish their identity and credibility. Can you please enlighten on this point

    Gunjan Sinha says:

    Hi Janak,

    Thank you for your liking of our article. Further the WOS can be set up by a Foreign Company in India under automatic and approval routes.

    For the registration of company the directors need to have Identification numbers, issued by the Registrar office, which requires the Apostilled copy of the address proofs along with other documents.

    Please feel free to write back, in case you need this service.

    Regards
    Gunjan

    Akshat Soni says:

    what are the rules & regulations to be followed by a foreign company to purchase 100% shares of an Indian company already incorporated in India .

    Gunjan Sinha says:

    Hi Akshat,

    Thank you for the query.

    The company incorporated in India may sell shares to a non resident, there are FDI restrictions and sectoral cap on the investments, the department of foreign policy and promotion issues regulations for the transfer of shares which involve certifications from bank and public accountants.

    Reserve Bank of India approves the documentation filed within stipulated time period through the Authorized Dealer bank.

    Regards,
    Gunjan

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