Key Considerations for Establishing a Subsidiary Company in India

Expanding your business into the Indian market through a subsidiary company offers exciting prospects and opportunities. However, to ensure a smooth and successful entry into the Indian market, it is crucial to be aware of essential factors. In this article, we will discuss important considerations you should keep in mind before establishing a subsidiary company in India.

What is an Indian Subsidiary Company?

An Indian subsidiary company is a business entity that is owned or controlled by another company, known as the parent company. The majority or partial ownership of the subsidiary lies with the parent company, and the relationship between the two is determined by factors such as preference share capital and paid-up equity share capital of the subsidiary.

India as an Attractive Business Destination:

India has positioned itself as a business-friendly nation, offering investment opportunities and implementing pro-business regulations. These efforts have made India a highly appealing choice for foreign companies looking to expand their operations.

Process of Registering an Indian Subsidiary:

1. Gather the necessary documents required for registration.
2. Choose a suitable name for the subsidiary company.
3. Draft the Articles of Association (AOA) and Memorandum of Association (MOA) for the subsidiary, specifying important details such as share capital and member information.
4. File an application for subsidiary registration using the prescribed form, Form SPICe+:
   • Part A: Apply for name reservation of the company.
   • Part B: Apply for incorporation, DIN allotment, PAN, TAN, EPFO registration, ESIC registration, Profession Tax registration, bank account opening, and GSTIN (if applicable).
5. Open a bank account in the approved name of the subsidiary company, following the necessary procedures.

Key Considerations before Registering as an Indian Subsidiary Company:

1. Legal Structure and Registration:

Understand the available legal structure options for subsidiary companies in India, such as private limited company, public limited company, and limited liability partnership (LLP). Seek advice from legal experts to choose the structure that aligns with your business objectives.

2. Foreign Direct Investment (FDI) Regulations:

Comply with the Foreign Exchange Management Act (FEMA) regulations and Reserve Bank of India (RBI) guidelines governing foreign direct investment, shareholding patterns, sector-specific restrictions, and compliance requirements. Familiarize yourself with the FDI regulations to ensure a smooth incorporation process.

3. Minimum Capital Requirements:

Adhere to the minimum capital requirements based on the chosen legal structure. Determine the appropriate capital structure and ensure compliance with the prescribed minimum capital requirements as per the Companies Act, 2013.

4. Corporate Governance and Compliance:

Maintain proper corporate governance practices and comply with statutory requirements, including bookkeeping, filing financial statements, conducting board meetings, and meeting tax and regulatory obligations. Establish a robust compliance framework to operate smoothly within the Indian legal framework.

5. Taxation and Transfer Pricing:

Understand India’s tax laws, including corporate tax rates, transfer pricing regulations, withholding taxes, and Goods and Services Tax (GST). Engage in proper tax planning and ensure compliance with transfer pricing regulations to optimize tax liabilities and prevent disputes with tax authorities.

6. Intellectual Property Protection:

Protect your intellectual property (IP) rights by registering trademarks, copyrights, patents, and other IP assets in India. Understanding the registration process and timelines will help safeguard your valuable assets and prevent unauthorized use or infringement.

7. Hiring and Employment Laws:

Familiarize yourself with India’s employment laws, including regulations for hiring, termination, employee benefits, and workplace safety. Seek guidance from local HR professionals or legal experts to ensure compliance and establish a favorable work environment.

Conclusion:

Establishing a subsidiary company in India presents numerous advantages for foreign businesses seeking growth and expansion. With opportunities to acquire real estate, tap into a thriving economy, access a skilled workforce, and enjoy limited liability protection, an Indian subsidiary provides a strong foundation for successful business operations and expansion. However, it is crucial to thoroughly prepare and understand the various considerations discussed above to navigate the Indian market successfully.