Business Formation Law Firm in India
Establishing a Wholly Owned Subsidiary in India
The most preferred route for the foreign companies to enter into the Indian market is to incorporate its Wholly Owned Subsidiary. This obviates the need of an Indian partner, and the foreign company can control the Board of Directors of the WoS to the fullest extent, provided the business to be undertaken in India by the foreign company is eligible for one hundred percent foreign investment under the Foreign Direct Investment Policy of the Government of India as amended from time to time.
To incorporate a Wholly Owned Subsidiary with one hundred percent Foreign Direct Investment, a foreign company need not obtain any prior approval in most of the business sectors, as it has been permitted to set up the wholly owned subsidiary under the automatic approval route.
This facilitates the incorporation of a Wholly Owned Subsidiary in the shortest possible time frame and the business operations of the Wholly Owned Subsidiary can commence soon after incorporation.
However, the foreign investment in the WoS by the parent company or other group companies needs to be approved by the Reserve Bank of India (RBI) after the WoS is incorporated. Approval for the same can be obtained post incorporation and post infusion of the foreign investment into the WoS, by filing the necessary forms with RBI in a time bound manner.
A Wholly Owned Subsidiary in India normally takes the route of a Private Limited Company. A Private Limited Company needs only two directors and two shareholders and can be incorporated within eight to twelve weeks, provided the foreign company provides all the documents in the proper formats.
Once established as a Wholly Owned Subsidiary in India, the WoS so incorporated is equated to a domestic company in India and as such a WoS pays the same corporate taxes as a domestic company.
Investment by the foreign company can be through either of the following routes:
- Equity Capital
- Preference Capital
If the foreign company decides to take the debt route in addition to the equity route, the WoS can receive a foreign loan from either the parent company or other recognized financial institutions outside India approved by the RBI. These foreign loans obtained by the WoS are governed by the External Commercial Borrowing (ECB) guidelines framed and administered by the Reserve Bank of India (RBI) from time to time.
The firm has assisted more than hundred foreign companies in establishing their wholly owned subsidiaries in India and further assists them in complying with all post incorporation legal compliances, depending on their business requirements.
FAQs on establishing a Wholly Owned Subsidiary in India
No. The presence of the officials in India is not required. All documents can be signed at the home country of the foreign company.
Yes. However, the words “Private Limited” or “India Private Limited” must be added to the key words. The choice of the name should not have an exact match with an existing company in India.
No. Provided the business which the wholly owned subsidiary intends to carry on in India, is permitted under the automatic approval route under the Foreign Direct Investment Policy of the Government of India.
Two. While one of the shareholders will be the foreign company, the other shareholder can be an individual or another foreign company belonging to the same business group.
Two. Both the directors must be individuals and at least one of them must be resident in India.
A Board Resolution from the foreign company signifying its intent to establish the wholly owned subsidiary in India and identifying the person authorized to sign the papers on its behalf.
A copy of the Certificate of Incorporation of the foreign company.
Passport of the person signing on behalf of the foreign company
Utility Bill to prove the residence of the person signing on behalf of the foreign company
The Memorandum of Association (MoA) of the wholly owned subsidiary
The Articles of Association (AoA) of the wholly owned subsidiary
The necessary forms and declarations (which may vary from time to time) required to be filed for incorporation of the wholly owned subsidiary as stipulated under the Companies (Incorporation) Rules, 2014
Yes. All documents signed outside India must be notarized and further apostilled at the foreign country. If the foreign country is not a signatory to the Hague Apostille Convention, the documents must be notarized and attested at the Indian Embassy/Consulate in the foreign country. It is sufficient to notarize the documents signed by foreign companies located in the Commonwealth of Nations and further attestation at the Indian Embassy or apostil is not required.
No. The foreign company is not permitted to establish a One Person Company in India.
Are foreign companies of any particular country prohibited from forming its subsidiary company in India?
Foreign nationals/foreign companies of countries sharing a land border with India are prohibited from incorporating their wholly owned subsidiaries/investing in an Indian company, unless the prior approval of the Government of India is obtained.
