I have an interesting question.. Seemingly there should be a straight-forward answer to the question, but surprisingly there isn't.. or i am not able to get to it..
Background: There is a private limited, Indian company. Lets call it IC (Indian company), which is WOS (wholly owned subsidiary) of a Netherlands based comany, lets call it NC (Netherlands company).
IC is incorporated to sell (on subscripttttion basis) a software solution online in India. The software is is owned by NC.
Now the projection is, the IC will start earning on say 3rd month of really starting the business, and will be in positive cashflow in 7th quarter.
The IC, need to spend for office rental, interior designing, PC & Servers, Software, Employee salaries, Consultants, Marketing and Sales expenses, etc. to start and persist business till it reaches the profitable state. Approx 3 crores.
Question: Now the question is, how IC will get the money it needs (for all kind of purposes) to sustain till time it is in positive cash flow? The parent company, NC is going to finance it.
As per my knowledge following are options, but with major issues:
1> Increase the authorized cap.. to say 3 crores to cover all expenses it positive cashflow.
- every time we get money from Netherlands, Issuance of Shares and FC-GPR needs to be done.
- Stamp duty
- Capital amount is used in all purposes
2> ECB, automatic route
- end-usage allowed only for Capital expenses. And strictly not allowed for working capital. (We cannot pay salaries, marketing expenses, general expenses, etc)
- Heavy reporting (monthly) and additional liability to justify/clarify/convey end usage of loan amount.
Downside: heavy interest to banks.. unnecessary complexity.. Delays.. dependencies..
4> I don't know!
But isn't there a straight-forward way through which, a foreign company can lend money for business purposes to it's daughter company in India?
I mean, NC simply deposits amount to IC bank account. IC uses it for getting business to profitable state.!
Or something like that...
Your expert feedback will be very useful and appreciated.