How to Set Up Your Own Business in India

INTRODUCTION

A foreign company can set up a business in India under the Companies Act, 2013 as a Wholly Owned Subsidiary, Joint Venture or Associate Company or by setting up a Liaison Office, Project Office, or Branch Office of the foreign Company. Now in this article, we will discuss the procedural aspect of the Incorporation of a Wholly Owned Subsidiary Company in India.

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WHAT IS A WHOLLY-OWNED SUBSIDIARY COMPANY?

A wholly-owned subsidiary company is a company that is incorporated under the provisions of the Companies Act, 2013. In which parent Company holds 100 percent share capital of such company.

REQUIREMENTS OF SETTING WOS IN INDIA

• To register the Indian subsidiary company, a minimum of two directors are required and at least one of the directors shall be an Indian citizen and Indian resident.
• Minimum two shareholders are required. Therefore, one nominee shareholder will hold on behalf of the holding company to fulfill the said requirement. There is no condition for the residential status of shareholders. Shareholders can be either individuals or entities or a combination of both.

WHAT IS THE PROCEDURE FOR THE INCORPORATION OF A WHOLLY-OWNED SUBSIDIARY IN INDIA?

Step 1: To apply for Digital Signature Certificate (DSC)

All the directors of the company are required to obtain a class-3 Digital Signature Certificate (DSC)

      Step 2: Apply for name reservation of proposed company

Form Part A of SPICe+ is required to be filed to reserve the name. Two names can be filed at a time. The name once approved is reserved for 20 days, which can be extended for 40 days or 60 days on filing the extension application.

Documents required for filing the name reservation application

• Resolution of the foreign company (duly apostille)
• Charter (MOA) of the foreign company (duly apostille)
• NOC from the foreign company to use its name (duly apostille)
• If the foreign company have its trademark, then a copy of the trademark registration certificate (duly apostille)

Step 3: Incorporation of wholly-owned subsidiary

Form Spice+ Part B and C are required to be filed on the Ministry of Corporate Affairs (MCA) website for registration of the proposed wholly own Subsidiary.

Following are the services offered under the above form:

• Incorporation of Company
• Director Identification Number (DIN) allotment
• Issue of Permanent Account Number (PAN) of company
• Issue of Tax Collection Account Number (TAN) of company
• Issue of EPFO registration
• Issue of ESIC registration
• Profession Tax registration (Maharashtra)
• Bank Account Selection
• Goods & Service Tax Registration

Step 4: Post incorporation compliance

First board meeting: First meeting of the board of directors is required to be held within 30 days from the incorporation of the Company.

Appointment of the first auditor: the First Auditor of the Company shall be appointed by the board within 30 days of incorporation who shall hold the office till the conclusion of the first shareholder meeting of the company, which is required to be held annually.

Declaration of commencement of business: After the opening of the bank account and before the commencement of any business operations, the subscribers are required to deposit the subscription amount as agreed and provided in the Memorandum of Association of the company. On the deposit of the subscription amount in the bank account, the company is required to file a Declaration of Commencement of business with the Registrar of Companies (ROC) in form INC-20A, which evidences that the subscribers have deposited the subscription money in the bank account of the company, within 180 days of its incorporation. Until such declaration of commencement is filed with the ROC, the Company cannot commence any of its business operations.

Name board: Companies are required to paint or affix the name of the company, registered office address, Corporate Identification Number (CIN), contact details, Goods and Services Tax Identification Number (if any), outside every office or place in which it carries on business.

Share certificates: The Company has to approve the format of share certificates of the Company and issue the same to the subscribers.

The Company has to allot/issue the shares within the time frame given by the Reserve Bank of India and Ministry of Corporate Affairs accordingly. The time limits are:

• RBI – The shares must be allotted within 180 days from the date of receipt of funds.
• MCA – The shares must be allotted within 60 days from the date of receipt of funds.

Therefore, in a nutshell, the time limit to issue/allot the shares comes down to 60 days as per the MCA.

Statutory register: All companies are required to maintain statutory registers for the company viz. register of members, directors, and key managerial personnel, charges, etc. The statutory registers must be regularly updated and kept at the registered office of the company. However, these registers can now also be maintained in electronic format.

Authority to obtain licenses required for running of the business: Depending upon the nature of business, the company is required to obtain licenses and registrations with different Government authorities, related to Shop Act License, Goods & Service Tax, Professional Tax, Importer Exporter Code, Start-up, etc., as applicable. The Company authorizes any director or other signatory to obtain such registrations in its first board meeting.

RBI COMPLIANCE FOR FDI RECEIVED IN INDIA

 Any contribution from foreign citizens to capital in the company is considered as a foreign direct investment (FDI) and accordingly, RBI compliance needs to be secured by the newly registered company in India. It involves the following steps:

• Remittance of subscription amount in India bank account from the foreign country bank account to the Indian bank account. Obtaining Foreign Inward Remittance Certificate (FIRC) and Know Your Customer (KYC) documents from the remitter bank.
• To make advance reporting to the RBI within 30 days from the receipt of the share application money.
• Allotment of shares to the subscriber.
• Reporting in Form FC-GPR to the concerned AD bank within 30 days of the date of allotment
• and follow up from the bank from time to time. 

FILING OF FORM PAS-3 WITH MCA:

This form needs to be filed with the MCA within 30 days from the date of allotment of shares.

PAYMENT OF STAMP DUTY:

The company will have to pay the stamp duty on the shares allotted as per the state in which the Company is registered

CONCLUSION

With wholly-owned subsidiaries, it is possible for the parent company to manage and diversify. The wholly-owned subsidiary can control operations, products, and processes. It provides the benefit of cost synergy by sharing administrative costs and other expenses between the parent and subsidiaries, using a common financial system.

Author: Ajay Kacher – a Legal Associate (M.com, LLB, Company Secretary) at  IP & Legal Filings, in case of any queries please contact/write back to us at support@ipandlegalfilings.com.