Provisions applicable to foreign co. to Open a Branch

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CA CS Amit Borade

Chief Accountant

2828 Points Joined December 2007

Legal provisions applicable to every foreign company to open Branch or place of office in India:

Foreign Exchange Management (Establishment in India of Branch or Office or Other Place of Business) Regulations, 2000

1) RBI may permit a company engaged in Manufacturing & trading activities abroad to set up Branch office in India with the following objectives:

a. To represent the parent company or other foreign companies in various matters in India, e.g. acting as buying or selling agents in India.

b. To conduct research work in the area in which the parent company is engaged

c. To undertake export & import trading activities

d. To promote possible technical & financial collaborations between the Indian companies & overseas companies

e. Rendering professional or consultancy services

f. Rendering Services in information technology & development of software in India

g. Rendering technical support to the products supplied by the partner or group companies

2) Approval of RBI is required for establishment in India of Branch or office or other place of business by a person resident outside India.

3) A person resident outside India desiring to establish a branch or liaison office in India shall apply to RBI in Form No. FNC 1.

4) A foreign company may open branch office in India if all the following conditions are satisfied:

a. The office can act as a channel of communication between the head office abroad & parties in India. It is not allowed to undertake any business any activity in India & cannot earn any income in India,

b. Expenses of the Branch office are to be met entirely through inward remittance of foreign exchange from Head office abroad.

c. Permission to set up branch is initially granted for a period of 3 years & this period may be extended from time to time by the Regional office in whose jurisdiction the branch office set up.

d. The branch office shall file with the concerned Regional Office an Annual Activity Certificate issued by Chartered Accountant.

5) No approval of RBI is necessary for a banking company if such company has obtained necessary approvals under the provisions of the Banking Regulation Act, 1949.

6) No approval of RBI is necessary for establishment of a branch or unit in SEZ to undertake manufacturing & service activities, if the following conditions are satisfied:

a. Such units are functioning in those sectors in which 100% FDI is permitted.

b. Such units comply with Part IX of the Companies Act, 1956 (Section 592 to 602)

c. Such unit function as stand alone basis, i.e. such unit will be isolated & restricted to the SEZ alone & no business activity or transaction will be allowed outside the SEZ.

d. In the event of winding of business & for remittance of winding up proceeds, the branch shall approach an authorised dealer.

As per Companies Act, 1956

Section: 592. Documents, etc., to be delivered to Registrar by foreign companies carrying on business in India

(1) Foreign companies which, after the commencement of this Act, establish a place of business within India shall, within ¹[thirty days] of the establishment of the place of business, deliver to the Registrar for Registration-

(a) a certified copy of the charter, statutes, or memorandum and articles, of the company or other instrument constituting or defining the constitution of the company; and, if the instrument is not in the English language, a certified translation thereof;

(b) the full address of the registered or principal office of the company;

(c) a list of the directors and secretary of the company, containing the particulars mentioned in sub-section (2);

(d) the name and address or the names and addresses of some one or more persons resident in India, authorised to accept on behalf of the company service of process and any notices or other documents required to be served on the company; and

(e) the full address of the office of the company in India which is to be deemed its principal place of business in India.

(2) The list referred to in clause (c) of sub-section (1) shall contain the following particulars, that is to say:-

(a) with respect to each director,-

(i) in the case of an individual, his present name and surname in full, any former name or names and surname or surnames in full, his usual residential address, his nationality, and if that nationality is not the nationality of origin, his nationality of origin, and his business occupation, if any, or if he has no business occupation but holds any other directorship or directorships, particulars of that directorship or of some one of those directorships; and

(ii) in the case of a body corporate, its corporate name and registered or principal office; and the full name, address, nationality, and nationality of origin, if different from that nationality, of each of its directors;

(b) with respect to the secretary, or where there are joint secretaries, with respect to each of them-

(i) in the case of an individual, his present name and surname, any former name or names and surname or surnames, and his usual residential address; and

(ii) in the case of a body corporate, its corporate name and registered or principal office:

Provided that, where all the partners in a firm are joint secretaries of the company, the name and principal office of the firm may be stated instead of the particulars mentioned in clause (b) of this sub-section.

(3) Clauses (2) and (3) of the Explanation to sub-section (1) of section 303 shall apply for the purpose of the construction of references in subsection (2) to present and former names and surnames as they apply for the purposes of the construction of such references in sub-section (1) of section 303.

(4) Foreign companies, other than those mentioned in sub-section (1), shall, if they have not delivered to the Registrar before the commencement of this Act the documents and particulars specified in sub-section (1) of section 277 of the Indian Companies Act, 1913 (7 of 1913), continue to be subject to the obligation to deliver those documents and particulars in accordance with that Act.

Procedure >>>>

1) Get all the above mentioned documents form the Company.

2) Submit E form 44 along with all documents attached to it; further deliver it to the state ROC with all the attached copies to e form 44.

3) Pay ROC fees as per State stamp act, before filling the e form 44.

Section: 594. ACCOUNTS OF FOREIGN COMPANY.

(1) Every foreign company shall, in every calendar year, - ( Rule 18-A & e form No 52)

(a) make out a balance sheet and profit and loss account in such form containing such particulars and including or having annexed or attached thereto such documents (including, in particular documents relating to every subsidiary of the foreign company) as under the provisions of this Act it would, if it had been a company within the meaning of this Act, have been required to make out and lay before the company in general meeting; and

(b) deliver three copies of those documents to the Registrar :

Provided that the Central Government may, by notification in the Official Gazette, direct that, in the case of any foreign company or class of foreign companies the requirements of clause (a) shall not apply, or shall apply subject to such exceptions and modifications as may be specified in the notification.

(2) If any such document as is mentioned in sub-section (1) is not in the English language, there shall be annexed to it a certified translation thereof.

(3) Every foreign company shall send to the Registrar with the documents required to be delivered to him under sub-section (1), three copies of a list in the prescribed form of all places of business established by the company in India as at the date with reference to which the balance sheet referred to in sub-section (1) is made out.

Thanks & Regards

Amit Borade

Replies (3)

CA CS Amit Borade

Chief Accountant

2828 Points Joined December 2007

Continual Obligation of Foreign Companies: The following are the regular obligations of the foreign companies:

1] Return of Alterations:

A foreign company shall within 30 days of change /alteration of any of the following file a return of alteration containing the particulars of the changes:

· The charter, statutes, or memorandum and articles of a foreign company or other instrument constituting or defining the constitution of the company; or

· The registered or principal office of a foreign company; or

· The directors or secretary of the company

· The name or address of any of the persons authorized to accept service on behalf of the company; or

· The principal place of business of the company in India,

The governing section is section 593 of the companies act.

2] Accountings:

Section 594 requires a foreign company to maintain books of accounts of its India and world business and three copies it has to be mandatory filed with the ROC every year within 9 months from the closure of the financial year. These accounts should be accompanied by a list of place of businesses in India. In respect of the Indian business of the foreign company the Profit and loss account, balance sheet and other accounting record should be prepared.

3] Stating of the Name:

Section 595 of the companies act, 1956 obligates a foreign company to conspicuously exhibit on the outside of every office or place of business where it carries on business in India, its name and country of incorporation, in letters easily legible in English characters and also in the local language (where it is situated). It must cause both these details also to be stated in all letter heads, business letters, bill heads, and letter papers, and in all notices and other official publications of the company.

4] Service of Notice:

Any process, notice, or other document shall be deemed to be sufficiently served on the foreign company if the notice or document is addressed to any person whose name has been delivered to the Registrar under the foregoing provisions of this Part and left at, or sent by post to, the address which has been so delivered.

5] Notice of Ceasing the Place of Business in India:

If any foreign company ceases to have a place of business in India, it shall forthwith give notice of the fact to the Registrar, and as from the date on which notice is so given, the obligation of the company to deliver any document to the Registrar shall cease, provided it has no other place of business in India.

Effect of Non-Compliance of Obligations:

If a foreign company fails to comply with any of the obligation posed upon by the companies the company shall not be entitled to bring any suit, claim any set off, make any counter-claim or institute any legal proceeding in respect of any contract, dealing or transaction, until it has complied with the provisions of part IX of the companies act But non-compliance would not affect the validity of such contracts. Further If any foreign company fails to comply with any of the foregoing provisions of the Part IX of this act, the company, and every officer or agent of the company who is in default, shall be punishable with fine which may extend to ten thousand rupees, and in the case of a continuing offence, with an additional fine which may extend to one thousand rupees for every day during which the default continues.

Registration of Charges:

Under section 600, a foreign company has to file the documents containing the particulars of a charge within 30 days from the date of the creation of charge with the principal registrar as well as the registrar of the state in which the principal place of the business of the company is situated. This is in respect of charge on properties in India which are created by a foreign company after 15th January, 1937 and charges on the properties in India which is acquired by any foreign company after 15th June, 1937. Where the charge is created or the completion of the acquisition of the property which takes place outside India, 30 days after the day on which, the instrument creating or evidencing the charge or copy thereof could, in due course of post and if dispatched with due diligence, have been received in India shall be the time available to file the charge with the Registrar. A foreign company is also under an obligation to provide inspection and copies of trust deed recording the creation of a charge for securing any issue of debentures to the debenture holders.

Winding Up of Foreign Companies:

Section 582 (b) of the companies act makes it clear that the provisions of part X of the act, dealing with the winding up of unregistered companies, shall apply to the foreign companies. [1985 (58) Comp Case 285]. Section 584 of the companies act, 1956 provides that where a body corporate incorporated outside India which has been carrying on business in India, ceases to carrying on business in India, it may be wound up as an unregistered company notwithstanding that the body corporate has been dissolved or otherwise ceased to exist as such under or by virtue of the laws of the country under which it was incorporated. Such winding up can only be made through the court. Where a foreign company ceases to carry on business in India or its substratum is gone or it carries on ultra virus business, it may be wound up under the just and equitable ground.

Aman Jain

Company Secretary in Practice

165 Points Joined November 2007

Dear Mr. Borade,

I think above metioned paragraph relate with liaison office and not for Branch office. plz do consider.

A foreign company may open branch office in India if all the following conditions are satisfied:

b. Expenses of the Branch office are to be met entirely through inward remittance of foreign exchange from Head office abroad.

c. Permission to set up branch is initially granted for a period of 3 years & this period may be extended from time to time by the Regional office in whose jurisdiction the branch office set up.

d. The branch office shall file with the concerned Regional Office an Annual Activity Certificate issued by Chartered Accountant.

Parth

article

34 Points Joined July 2012

Thank u Sir ur information is very useful but i want to know that if the branch office is establised do the firm can earn rental income and distribute to there owners.i want to know the process of remittance back of income. bcoz atlast the motive for opening the branch is to earn income.