Subsidiary Company Registration in India- 6 Factors to be considered

by EzyBiz India Tax & Accounting Consulting Firm

In recent years, India has emerged as one of the best destinations for setting up businesses and making foreign direct investments. Many foreign companies are now moving a significant portion of their business operations and Research and Development Centers to India. With its Ease of Doing Business Initiative, Foreign Direct Investment Policies, Startup culture, and other government plans, it has become more viable and easier for foreign companies and foreign investors to set up or incorporate a company in India. Let’s elaborate on how India is becoming one of the most preferred countries in the world for doing business.

Why Choose India for Company Registration?

Some of the reasons why more and more foreign companies opt for subsidiary company registration in India and bringing foreign direct investments are as under:

India provides an advantage owing to its democratic setup, vast consumer market base, and English-speaking professional manpower.
The ease of doing business in India initiative by the Government has reduced the subsequent amount of rules and regulations for starting and operating a business in India and the time associated with it. Hence, providing the foreign investors multiple numbers of benefits.
With its large population, India provides vast labor and human resource to foreign companies and that too at cheaper prices.
Availability of resources in the country made it much easier for foreign companies to invest here.
The subsidiary company provides an advantage in terms of lower tax rates as well as the fact that the Indian subsidiary can use the brand name of the parent company. Further, venture capitalists, as well as private equity investors, can make investments in Indian subsidiaries as shares of Indian subsidiary companies are freely transferrable.

All these factors contribute to the fact that more and more foreign companies are setting up business in India.

There are multiple ways in which foreign companies can set up business in India and operate.

In form of subsidiary company registration in India ( Private limited company registration or Public Limited Company registration).
In the form of Liaison Office, Project Office or Branch Office.
In the form of Joint Ventures ( Private limited company registration or Public Limited Company Registration).
In the form of Limited Liability Partnership (LLP) registration in India.

All the aforesaid entities have their own advantages and disadvantages and the selection of a particular entity depends upon the long-term vision of the foreign company as well as its business operations in the home country.

2. Location for Subsidiary Company Registration in India

Choosing the right location for the commencement of business operations in India is very important. Such decision depends upon multiple factors as mentioned below:

For instance, in case the foreign company wants to set up a business in India in the field of Information Technology and Software Development, it may opt for Bangalore in Karnataka state. Many software companies have established its subsidiary company in this city because of its highly skilled human resource, business-friendly culture, and its telecommunication infrastructure.
In case, the foreign company wants to venture into life science and health care activities in India, Hyderabad has emerged as a favorable place to open a subsidiary company for related business operations and companies.
Further, many foreign companies have also considered establishing their company operations in cities like Pune in Maharashtra, Chennai in Tamil Nadu, Gurugram in Haryana state, Noida and Greater Noida in Uttar Pradesh and Ahmedabad in Gujarat, and many more due to its lower cost efficiency, less mobile labor force and less competition for employees.
Another key factor in deciding the location of the subsidiary company is the location or city of residence, where the potential local managing director is living in India.

3. Amount of Capital with Which Indian Subsidiary shall be registered

Although there is no minimum share capital prescribed under the law, however, it is advisable to register an Indian subsidiary with sufficient share capital.

The reasons for the same is that post-registration of Indian subsidiary, share subscription money deposited by the parent company in the Indian bank account will be considered as FDI and RBI compliance need to be done for intimating such receipt of FDI by filing of form ARF, FCGPR, etc with RBI.

In case, Indian subsidiary has less capital, it has to issue shares again to the parent company for bringing share subscription money which will again involve RBI compliance and involve cost of professionals. Private Limited Company Registration

Therefore, in order to avoid time and cost of compliance, it is advisable to have sufficient share capital in the Indian company. Indian subsidiary must estimate their initial working capital and capital investment need in India for 4 to 6 months and with that amount of share capital, the Indian subsidiary company shall be registered. Normally, USD 20,000 is ideal to start.

4. Number of Directors and Shareholders

As per Indian regulations, minimum of 2 directors are required for subsidiary company registration in India and at least 1 director shall be an Indian citizen and Indian Resident. However, it is advisable to have at least 2 Resident Indian directors. This will facilitate the holding of board meetings, passing Board resolutions etc between Indian Directors, and no need to send documents for the signature of foreign directors again and again.

Also, all documents which come from the foreign director or foreign company need to be apostilled and notarized in a foreign country which will increase time and cost. Also, in India at least 4 board meetings are required to be held every year. In case, there are only 2 directors, the foreign director has to visit India for attending board meeting again and again whereas if there are 2 Indian Directors, they can hold and attend a board meeting and each time foreign director don’t have to visit India. Therefore, there should be at least 2 Indian Resident Directors. There can be any no. of foreign Directors.

5. Prior Approval of RBI/FIFP in some cases

Although foreign direct investment in India are allowed under automatic route for most of the sectors and no need to take any prior approval from RBI or FIFP, however, there are some sectors where FDI is permissible under the government approval route. For investment in those sectors, prior approval of RBI/FIFP would be required. Also, there are some prohibited sectors where investments are not permissible.

Also, in case FDI is coming to India from land-locked countries like China, Bangladesh, Nepal, Myanmar, Bhutan, Pakistan, Hong Kong, Afghanistan, prior approval of RBI/FIFP needs to be taken.

6. Hire a Professional Service Provider for Company formation in India

Company formation in India is a comprehensive exercise and involves a lot of documentation and expertise of a professional chartered accountant or lawyer is required for smooth completion of the entire incorporation process as well as post incorporation process like:

Completing the required administrative requirements.
Completing the legal requirements of subsidiary company registration in India such as:

Application for name availability and approval.
Tax registration procedures.
Labor registration process.
Preparation of Memorandum of Associations (MOA) and Articles of Association (AOA).

RBI Compliance for reporting of FDI received from the parent company.
Obtaining approval from RBI/FIFP.
Payroll outsourcing services.
Human resource support and services.
Tax and Regulatory Filing.
Accounting/ Bookkeeping.
Audit/Assurance service.

We at EzyBiz India provide complete handholding to foreign companies desirous of registration of a subsidiary company in India. We assist them in all pre-incorporation as well as post-incorporation compliance as mentioned above.