Indian Subsidiary

In India, subsidiaries generally fall into two main categories:

1. 100% Owned Subsidiary

A 100% owned subsidiary is one where the parent company holds full ownership of the subsidiary's shares. It’s essential to know that this type of subsidiary can only be set up in industries that allow complete Foreign Direct Investment (FDI).

2. Partial Ownership Subsidiary

In this scenario, the parent company owns 50% of the subsidiary's shares.

Before moving forward with creating a foreign subsidiary in India, it's necessary to get approval from the Reserve Bank of India. This step ensures adherence to the nation’s foreign investment regulations and protects the interests of all parties involved.

Incorporating a subsidiary company in India presents several notable benefits for foreign businesses. Here’s a closer look at why setting up a subsidiary in India is advantageous:

Access to the Indian Market

India offers a vibrant and competitive market with numerous investment prospects. Foreign entrepreneurs are drawn to India’s diverse opportunities, making it an ideal location to establish a subsidiary company and tap into this growing market.

Foreign Direct Investment (FDI) in India

FDI involves investments from foreign companies into Indian firms through purchasing shares or acquiring stakes. In 2020, the Indian government mandated prior approval for investments from neighboring countries, enhancing the appeal of setting up an Indian subsidiary for foreign investors.

Continuity of Existence

The principle of perpetual succession guarantees that a company’s existence is maintained despite changes in management, ownership transfers, or financial difficulties. This ensures that the company remains operational and stable over time.

Limited Liability

A key benefit of forming a subsidiary is limited liability. This structure safeguards the personal assets of shareholders and directors, as the company itself is responsible for its financial obligations. This protection encourages individuals to choose a corporate structure over other business forms.

Opportunities for Expansion

Launching a subsidiary in India allows foreign businesses to diversify and broaden their operations. This expansion supports the growth of the Indian economy and introduces new products and services, fostering healthy market competition.

Distinct Legal Identity

Under Indian law, a company is recognized as a separate legal entity from its shareholders and directors. This legal distinction allows the company to enter into contracts, initiate legal proceedings, and engage with other entities independently, providing operational flexibility and legal autonomy.

Property Rights

As a legal entity, a subsidiary has the capability to buy or lease property in India for its business needs. To avoid potential disputes among stakeholders, it is advisable to hold property in the company's name, aligning with the principle of perpetual succession.

​In India, the Ministry of Corporate Affairs (MCA) oversees the establishment and regulation of companies, ensuring adherence to legal and procedural standards. The Registrar of Companies (ROC) manages the incorporation process, ensuring that all legal obligations are met. For foreign subsidiaries operating in India, the Reserve Bank of India (RBI) oversees compliance with foreign exchange regulations, maintaining financial inte​grity.

When setting up a foreign subsidiary in India, consider these critical factors:

Company Name: Ensure that your new enterprise has a distinctive name that does not conflict with any existing business names or trademarks.

Shareholders: The parent corporation can own 100% of the shares. Alternatively, any two foreign individuals may be shareholders. There is no requirement for an Indian resident to be a shareholder.

Share Capital: There is no mandated minimum capital requirement for company registration in India.

Directors: At least two directors are required, with a minimum of one being a resident of India. If needed, nominee directorship services can be arranged.

Registered Address: Every company must have a registered office address officially recorded with the government. Virtual office services are available to fulfill this requirement.

Annual General Meeting (AGM): In compliance with the Companies Act, Indian companies must hold at least one general meeting per year, along with two board meetings.

Company Secretary: Filing three secretarial returns annually is mandatory and handled by a company secretary. Corpadda offers assistance with these filings. Additionally, a statutory auditor must be appointed.

Taxation

• Professional Fees: Includes government fees for company registration.
• Profit Tax Rate: Approximately 25.36% is applicable post-incorporation.
• GST (Goods and Services Tax): Relevant to domestic sales, requiring monthly GST returns and one annual tax return.

Annual Compliance

• Statutory Audits: Mandatory for all companies, even smaller ones.
• Filings: Foreign subsidiaries in India must appoint a statutory auditor and submit annual filings.

Understanding and adhering to these requirements is crucial for successfully establishing and operating a company in India under the Companies Act 2013.

Most sectors in India allow for 100% Foreign Direct Investment (FDI). However, certain industries require prior approval from the Central Government. These include sectors like private security, civil aviation, mining, print media, broadcasting, satellite operations, pharmaceuticals, and food product trading.

Foreign entities can establish fully-owned Indian subsidiaries, maintaining complete control, provided they meet the necessary criteria.

Requirements for a Private Limited Company:

• No minimum capital requirement.
• At least 2 directors (with a minimum of one director being a resident of India).
• A minimum of 2 shareholders.

Requirements for a Public Limited Company:

• At least 3 directors.
• A minimum of 7 shareholders.