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Registering as an Indian Subsidiary Company: Things you should know

Ishita Ramani , Last updated: 25 May 2023  
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Introduction

Expanding your business into a new market like India can be an exciting and promising venture. One of the popular methods for establishing a presence in India is by forming a subsidiary company. A subsidiary is a company controlled by another company, known as the parent company. While forming a subsidiary company in India offers numerous advantages, it is essential to be aware of certain key aspects to ensure a smooth and successful entry into the Indian market. In this article, we will discuss important factors that you should know before forming a subsidiary company in India.

Registering as an Indian Subsidiary Company: Things you should know

What is an Indian Subsidiary Company?

An Indian subsidiary refers to a company that is owned or controlled by another company. It is a business entity where the majority or partial ownership lies with a holding company. The relationship between the holding company and the subsidiary can be determined by considering factors such as preference share capital and paid-up equity share capital of the subsidiary.

India has rapidly emerged as one of the most attractive destinations for businesses worldwide. The country has taken various measures to establish itself as a business-friendly nation, including providing investment opportunities, encouraging foreign corporations to participate in domestic projects, and implementing pro-business regulations. These efforts have made India an appealing choice for foreign companies looking to expand their operations.

Process of registering an Indian Subsidiary

1. Begin by gathering all the necessary documents required for registration.

2. Choose a suitable name for the Subsidiary Company that is being registered.

3. The next step involves drafting the Articles of Association (AOA) and Memorandum of Association (MOA) for the Subsidiary Company. These documents outline important details such as share capital, member information, liability to members, and shareholding details.

4. File an application for subsidiary registration using the prescribed form, known as Form SPICe+:

  • Part A: Apply for the name reservation of the company in Part A of the form Spice+. It can be used for taking the name approval of the proposed Company and also for filing Company registration in one go.
  • Part B: In Part B of the Form Spice+, apply for the following services:
  1. Incorporation
  2. DIN allotment
  3. Mandatory issue of PAN
  4. Mandatory issue of TAN
  5. Mandatory issue of EPFO registration
  6. Mandatory issue of ESIC registration
  7. Mandatory issue of Profession Tax registration (State you have decided to register)
  8. Mandatory Opening of Bank Account for the Company and
  9. Allotment of GSTIN (if so applied for)

5. Open a bank account under the approved name of the Subsidiary Company. This step involves selecting a suitable bank and completing the necessary procedures to establish the company's bank account.

 

Things you should know before registering as an Indian Subsidiary Company

Legal Structure and Registration

Before establishing a subsidiary in India, it is crucial to understand the legal structure options available. The most common legal structures for a subsidiary company in India are private limited company, public limited company, and limited liability partnership (LLP). Each structure has its own requirements and regulations. It is recommended to consult with legal experts or professional advisors who can guide you in selecting the appropriate structure based on your business objectives.

Foreign Direct Investment (FDI) Regulations

Foreign companies planning to form a subsidiary in India need to comply with the Foreign Exchange Management Act (FEMA) regulations and the Reserve Bank of India (RBI) guidelines. These regulations govern foreign direct investment, shareholding patterns, sector-specific restrictions, and compliance requirements. Understanding the FDI regulations is crucial to ensure compliance and avoid any legal complications during the incorporation process.

Minimum Capital Requirements

In India, subsidiary companies are subject to minimum capital requirements based on the chosen legal structure. For example, a private limited company generally requires a minimum authorized and paid-up capital. It is essential to determine the appropriate capital structure and ensure compliance with the prescribed minimum capital requirements as per the Companies Act, 2013.

Corporate Governance and Compliance

Indian corporate governance and compliance standards are stringent and require adherence to various regulatory obligations. As a subsidiary company, you need to comply with statutory requirements such as maintaining proper books of accounts, filing annual financial statements, conducting board meetings, and complying with tax and other regulatory obligations. Establishing robust corporate governance practices and having a sound compliance framework in place is vital to operate smoothly within the Indian legal framework.

Taxation and Transfer Pricing

India has a complex tax system, and it is important to understand the tax implications of operating a subsidiary company. Familiarize yourself with India's tax laws, including corporate tax rates, transfer pricing regulations, withholding taxes, and Goods and Services Tax (GST). Proper tax planning and understanding the transfer pricing regulations can help optimize tax liabilities and avoid any disputes with tax authorities.

Intellectual Property Protection

Protecting your intellectual property (IP) rights is crucial when establishing a subsidiary company in India. It is advisable to register your trademarks, copyrights, patents, or any other IP assets in India to safeguard your business interests. Understanding the process and timelines for IP registration in India will help you secure your valuable assets and prevent unauthorized use or infringement.

 

Hiring and Employment Laws

India has specific employment laws and regulations that govern hiring, termination, employee benefits, and workplace safety. It is important to familiarize yourself with these laws to ensure compliance and establish a healthy work environment. Consider consulting with local HR professionals or legal experts to understand the employment landscape and adhere to all labor laws.

Conclusion

Forming a subsidiary company in India can open new opportunities for business expansion and growth. However, it is essential to approach the process with thorough preparation and understanding. An Indian subsidiary presents numerous advantages for foreign companies seeking to enter the Indian market. From the ability to acquire real estate, capitalize on a growing economy, access a young and productive workforce, and enjoy limited liability protection, to the flexibility in choosing the appropriate legal structure, an Indian subsidiary provides a solid foundation for successful business operations and expansion in India.

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Published by

Ishita Ramani
(Director - Operations)
Category Corporate Law   Report

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