Types of Subsidiaries in India
Foreign companies can set up wholly-owned subsidiary in sectors where
100% foreign direct investment is permitted under the FDI policy. The
wholly-owned subsidiary may be either of the following business entities:
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Private Limited Company
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Public Limited Company
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Unlimited Company
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Sole Proprietorship
Foreign Companies can also set up their operations in India through the
business entities:
- Liaison Office/Representative Office
- Project Office
- Branch Office
Such offices can undertake any permitted activities. Companies have to
register themselves with Registrar of Companies (ROC) within 30 days of
setting up a place of business in India.
Private Limited Company
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IT
is mandatory for foreign investors to obtain governmental approval for
incorporating in India or forming a joint venture in India. In some sectors
certain restrictions apply. Proper legal advice must be obtained before
incorporating in India to ascertain the eligibility and applicable
restrictions.
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A private company is a company which has the following
characteristics:
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shareholders’ right to transfer shares is restricted;
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the number of shareholders is limited to fifty; and
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an invitation to the public to subscribe to any shares or debentures is
prohibited.
Public Limited Company
Limited
Liability Partnership Law soon in India
A new law to allow "Limited Liability
Partnership" (LLP) in India is expected to be introduced in the
Parliament of India.
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A public company is defined as a company which is not a
private company. The following conditions apply only to a public company:
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It must have at least seven shareholders.
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A public company is not authorized to start business upon the grant of the
certificate of incorporation. In order to be eligible to commence business
as a corporation, it must obtain another document called "trading certificate".
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It must publish a prospectus or file a statement in lieu of a prospectus
before it can start transacting business.
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A public company is required to have at least three directors.
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It must hold statutory meetings and obtain government approval for the
appointment of the management.
There are several other provisions contained in the
Companies Act 1956 which are applicable only to public companies and should
be consulted.
Liaison Office/Representative Office
A Liaison Office could be established with the approval
of the government of India. The role of Liaison Office is limited to
collection of information, promotion of exports/imports and facilitate
technical/financial collaborations.
Liaison office cannot undertake any commercial activity directly or
indirectly.
Project Office
Foreign companies planning to execute specific projects in India can set up
a temporary project/site offices in India for carrying out activities only
relating to that project. The Government of India has now granted general
permission to foreign entities to establish project offices subject to
specified conditions.
Branch Office
Foreign
companies engaged in manufacturing and trading activities abroad are
allowed to set up Branch Offices in India for the following purposes:
-
Export/Import
of goods
-
Rendering
professional or consultancy services
-
Carrying
out research work, in which the parent company is engaged.
-
Promoting
technical or financial collaborations between Indian companies and
parent or overseas group company.
-
Representing
the parent company in
India and
acting as buying/selling agents in India.
-
Rendering
services in Information Technology and development of software in
India.
-
Rendering
technical support to the products supplied by the parent/ group
companies.
-
Foreign
airline/shipping company.
A branch office is not allowed to carry out manufacturing activities on
its own but is permitted to subcontract these to an Indian manufacturer.
Branch Offices established with the approval of RBI, may remit outside
India profit of the branch, net of applicable Indian taxes and subject to
RBI guidelines Permission for setting up branch offices is granted by the
Reserve Bank of India (RBI).
Procedure for Formation of Company in India
Applicable law
The Indian Companies Act of 1956
Corporate Documents & Registration of a Company
An application for registration should be submitted to the registrar of companies
with the following documents:
1. Memorandum of Association;
2. Articles of Association;
3. a declaration signed by a person named in the articles of the proposed
company as a director, manager, or secretary of the company, or by an advocate
of the Supreme Court or High Court, or by an attorney entitled to appear
before the High Court, or by a chartered accountant practicing in India stating
that all the requirements of the Companies Act 1956 and the applicable rules
with respect to the registration and other matters have been complied with;
4. a list of persons who have consented to act as directors of the company.
5. if the proposed company is a public company, consent of very person prepared
to act as a director must be submitted in a prescribed form;
6. information about directors, managing directors and managers and secretary
must be submitted in a prescribed form;
7. information about the registered office in a prescribed form;
8. power of attorney in favor of one of the promoters or any other person,
authorizing him/her to make corrections in the documents submitted to the
registrar of the companies, if it becomes necessary; and
9. applicable registration fee payable to the registrar of the companies.
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