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Bringing funds to India (EXPERTs plz see)

Kinjal Desai (Manager) (31 Points)

08 August 2011  

Hello All,

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.


 4 Replies

SANTOSH SHAH (Company Secretary) (749 Points)
Replied 08 August 2011

Originally posted by : Kinjal Desai

 Hi Kinjal,

IC is WOS of NC which is a foregin company. Any transaction with Foreign company and receiving of funds would be

through RBI Route. Assuming if NC holding > 51% shares in IC as WOS, then the remaining 49% Shares held by IC can be

partly reduced by alloting some  % stake to  any new Investors from India who are ready to invest in your company.


In such case, IC % of holding would be reduced to a certain extent, NC would still be a Holding Company, and your company

can increase the Authorized and Paid up capital to meet the various expenditures. There will not be any need to file FC-GPR.

So in my view IC can increase ASC & PSC ( Authorized / Paid up Capital) by alloting some of its Stake to new Indian



This is my view. Experts Kindly excuse if am wrong, and would appreciate if your views are solicited in this regard.



Santosh Shah


Kinjal Desai (Manager) (31 Points)
Replied 08 August 2011

Hello Mr Santosh,

Thanks for reply.

NC is holding 99.99% of shares of IC. NC, the parent company, has kept aside the money to fund IC.

We don't wish to attract/add new investors. NC is going international, starting in few contries the funding is planned from parent company.


Kinjal Desai (Manager) (31 Points)
Replied 09 August 2011

Subject EXPERTs please reply..

Dipjyoti Majumdar (CA in service & CS. dipmaj@ rediffmail.com )   (3414 Points)
Replied 11 August 2011

Using equity route is the only option under circumstances when you do not want to avail ECB funding.

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