Indian Subsidiary Company Registration

Indian Subsidiary Company Registration: An Overview

India has an incredibly talented workforce, and the opportunities for growth and expansion are endless. That's why foreign investors are passionate about pursuing dream entrepreneurship in India. They register their Indian subsidiary company in India to capitalize on the potential of the Indian startup ecosystem.

The Indian Subsidiary Company registration process is governed by the Companies Act, 2013. An Indian Subsidiary Company refers to a company that owns and holds a substantial stake in a company registered in India.

Definition of a Subsidiary Company

According to Section 2(87) of the Companies Act of 2013, a company is considered a subsidiary if another company holds more than half of its nominal value of equity share capital or a company that is controlled by another company, known as a holding company or parent company, in a subsidiary company where the parent company holds authority over the subsidiary, whether partially or wholly.

The Subsidiary company definition encompasses the following scenarios, below are the subsidiary company examples to understand the subsidiary company.

• Company A holds more than 50% of the share capital in Company B.
• Company A can appoint or remove most of the directors of Company B.
• Company A holds more than 50% of the share capital in Company B, and Company B holds more than 50% of the share capital in Company C; thus, Company A is the parent company of both B and C.

How Many Types of Subsidiary Companies are in India?

In India, subsidiaries are broadly classified into various types:

1. Wholly Owned Subsidiary Company

The parent company holds complete ownership, accounting for 100% of the subsidiary’s shares. However, this type of subsidiary company can only be established in a sector permitting 100% foreign direct investment (FDI).

For example, in India, sectors such as mining and agriculture allow up to 100% investment through the automatic route, eliminating the need for security clearance from the Ministry of Home Affairs.

2. Partially Owned Subsidiary Company

In this type, the parent company holds 50% of the shares in the subsidiary company or less than 100% ownership of the subsidiary’s shares. In such arrangements, the parent company or holding company typically possess a majority stake but does not have full control over the subsidiary company.

This type of subsidiary allows for shared ownership and decision-making between the parent company and other shareholders.

3. Joint Venture Subsidiary

A joint venture represents a subsidiary arrangement where two or more companies collaborate to form a new entity. Typically, in India, this involves the partnership of a foreign parent company with an Indian entity. Joint ventures can be established as separate legal entities.

4. Liaison Office

A liaison office serves as a subsidiary established to advance the business interest of the parent company in India. However, it is not permitted to engage in any commercial activities within India.

5. Branch Office

A branch office functions as a subsidiary set up to conduct the same business activities as the parent company. Unlike a liaison office, a branch office is authorized to engage in commercial activities, and it bears similar legal obligations as a wholly owned subsidiary.

Regulatory Framework in Indian Subsidiary Company

Section 2(87) of the Companies Act 2013 outlines two tests to determine the holding and subsidiary company relationship, encompassing control over the board of directors and voting power. Governance of subsidiary companies under these mandates the consolidation of financial statements with those of the holding and subsidiary company.

Additionally, restrictions exist regarding cross-holding, treasury stock, and the number of subsidiary layers, aiming to prevent fund diversion. The Companies Act, 2013 empowers the holding company to appoint and remove the subsidiary‘s board of directors, maintaining control.

Under the SEBI (Listing Obligation & Disclosure Requirements) Regulation 2015, subsidiary governance is enhanced with specific emphasis on material subsidiaries and related party transactions.

The Ministry of Corporate Affairs is responsible for establishing and enforcing the rules and regulations for the Indian subsidiary company registration procedures and ensuring that the companies comply with legal requirements.

Advantages of Registering an Indian Subsidiary Company

Let’s understand the advantages of Indian subsidiary company registration in India:

1. Opportunities for Market Entry

India’s dynamics and competitive market landscape present numerous investment prospects, attracting foreign entrepreneurs to establish subsidiary companies within its borders.

2. Foreign Direct Investment Appeal

With the introduction of regulations requiring prior approval for investments from neighbouring countries, Indian subsidiary company registration becomes an attractive avenue for foreign investors seeking FDI opportunities in India.

3. Perpetual Succession Assurance

The concept of perpetual succession ensures the continuous existence of a company regardless of changes in management, ownership or financial status, providing stability and continuity to operations.

4. Limited Liability Protection

Indian subsidiary company registration offers the benefits of limited liability, safeguarding the personal assets of shareholders and directors from the country’s debts and liabilities.

5. Separate Legal Entity

Indian subsidiary companies are recognized as distinct legal entities, empowering them to enter into agreements, initiate legal actions, and own or rent properties in their name, separate from their shareholders and directors. 

6. Ownership of Property & Rights

As separate legal entities, Indian subsidiary companies possess the authority to acquire properties for business activities, enhancing operational flexibility and minimizing potential conflicts among company members.

Eligibility Criteria for Indian Subsidiary Company Registration

During Indian Subsidiary Company registration, there are the following eligibility criteria to be followed to ensure compliance however below are some of the eligibility criteria such as:

• A minimum of two directors is required, with at least one director being a resident of India,
• Every director of the company must obtain a Director Identification Number (DIN),
• There is no minimum capital requirement for incorporating an Indian Subsidiary Company,
• The subsidiary must have at least two shareholders, who can be an individual, entity or combination of both,
• Approval from the RBI is required to regulate foreign currency exchange aspects.
• Compliance with rules and regulations set by the Ministry of Corporate Affairs and the Registrar of Companies is mandatory.
• The parent company must hold at least 50% of the total equity share capital.

Documents Required for Indian Subsidiary Company Registration

The essential documents needed before opening a subsidiary in India, so below are the essential documents required for an Indian subsidiary company registration:

1. Proof of Address

There is a submission of documents verifying the office address, such as rental agreements or utility bills.

2. Identification Documents

For foreign nationals, a copy of the passport, address proof, and the latest bank statement are mandatory. An Indian national is required to submit a PAN Card along with the address proof and a photo of an ID proof, such as a passport or driving license.

3. Submission of MoA and AoA

During Indian subsidiary company registration, a memorandum of association, article of association, and capital layout are required.

4. Power of Attorney

The parent company must issue a power of attorney authorizing one of the directors or a designated person to act on behalf of the company during the registration process.  

5. Certificate of Incorporation

The parent company must provide a certificate of incorporation from its country of origin, and the Indian subsidiary company requires a certificate of incorporation from the company's Registrar.

6. Related Documents of Directors and Shareholders

The digital signature certificate and Director identification number for directors and designated shareholders, identify proof, details of shareholding, and declaration by shareholders and directors.

Procedure for Indian Subsidiary Company Registration

Registering a subsidiary company in India involves a detailed process, so below are the detailed procedures to be followed for registering an Indian subsidiary company:

Step 1: Choose a Company Name

Begin by selecting a unique name for the subsidiary company in India and adhering to the guidelines established by the Ministry of Corporate Affairs.

Step 2: Obtain DIN and DSC

There is a requirement to obtain a DIN and DSC for each of the proposed directors to file documents online with the Ministry of Corporate Affairs.

Step 3: Filing of Incorporation Documents

With the necessary DIN and DSC, their company can proceed to file the incorporation documents with MCA and submit the MoA and AoA along with the form for the appointment of directors.

Step 4: Obtain a Certificate of Incorporation

After submitting the incorporation documents and after the review and approval from the Ministry of Corporate Affairs, the subsidiary company will receive a certificate of incorporation.

Step 5: Open a Bank Account

After obtaining a certificate of incorporation, the company needs to open a bank account, which will typically take one week and can be done remotely.

Step 6: Registration for Tax

The subsidiary company needs to register for tax and compliance purposes, which involves obtaining a Tax Account Number (TAN), Value-Added Tax (VAT), or registration for various other taxes, such as GST, to obtain a GSTIN and corporate income tax.

Step 7: Registration of EPFO and ESIC

The company needs to register with the employment provident fund organization and the Employees’ State Insurance Corporation to ensure compliance with mandatory social security schemes for its employees.

Post-Incorporation Compliance for Indian Subsidiary Company

Establishing an Indian subsidiary company has become more important in registering and encouraging businesses to comply fully with regulations. However, the management needs to be aware of post-incorporation compliance requirements to avoid penalties.

1. Opening of Bank Account

The Indian subsidiary company must open a bank account even before obtaining incorporation approval.

2. Registration of Taxes

The company must obtain a PAN for the subsidiary company from the Income Tax department and register for a TAN for a tax deduction.

3. Conducting First Meeting

As per Section 173 (1) of the Companies Act, 2013, the company must hold its first board of director meeting within 30 days of incorporation.

4. Obtaining Office Address

According to Section 12(1), the company must have a registered office within 15 days of incorporation.

5. Display of Company Name

The company must display its name at all business locations in the local language and obtain the company seal with the office name.

6. Appointment of Auditor

Under Section 139 (1), the board of directors must appoint the first auditor within 30 days of incorporation. 

7. Maintaining of Statutory Record

The company must maintain a statutory register at its registered office in the prescribed form to avoid penalties.  

8. Preparing of Books of Accounts

According to Section 128, every company must maintain proper books of accounts that present the financial position of the company.

9. Disclose Interest

Section 184 (1) of the Companies Act, 2013 requires each director to disclose their interest in any company, firm or association.

Cost of Registering an Indian Subsidiary Company in India

The cost of registering an Indian subsidiary company in India depends upon various factors such as legal fees, government charges, and professional services which will range around Rs 50,000 to Rs 1,00,000.

Timeframe of Indian Subsidiary Company Registration  

The process of registering an Indian subsidiary company takes 2 to 4 months. This time frame accounts for the need to secure approvals from the parent company for various decisions related to the subsidiary.

Why Corpbiz for Registering an Indian Subsidiary Company?

Corpbiz is your trusted partner for fulfilling your entrepreneurial dreams of Indian subsidiary company registration. We ensure top-notch compliance services for your business.  

From securing the perfect company name to streamlining the PAN and TAN application filings, our experts guide you every step of the way from assistance in obtaining DIN and DSC to ensuring document preparation, we are committed to simplifying your journey towards the establishment of the subsidiary company.  

• Assist in the seamless filing of the application with the RoC.
• Expert guidance and Consultation throughout the entire registration process.
• Corpbiz helps clients fulfill post-incorporation compliance requirements.
• Effortless opening of bank accounts.
• Timely filing of the annual returns.