Subsidiary Company: A company is a subsidiary company when 51% more of its shares are being subscribed by any other company

Foreign subsidiary company: When a foreign company acquire 51% or more of an Indian Company, then such Indian company will be termed as Foreign Subsidiary company

Wholly owned Foreign subsidiary company: When a foreign company acquire 100% of shares of an Indian Company, then such Indian company will be termed as Wholly owned Foreign Subsidiary company.

A. Check points before investing in an Indian Company

Need to check:

a) Whether the Indian Government allow the Foreign companies to invest in such particular sector.

b) To check the Sectoral Cap and accordingly to confirm from RBI about the limit of investment in an India Company.

c) Accordingly, as per the sectoral cap, a Foreign company may invest in India from 10% upto even 100% of capital of Indian Company.

d) A foreign company can start even a wholly owned subsidiary company, by investing 100% of capital of the India Company, if the sectoral cap allowed is 100% in any sector

B. CAN a Foreign company invest in only Companies (Private Limited/ Pubic Limited companies) or can it also invest in Partnership Firms/ Prop. Firms.

A Foreign company/ NRIs or Foreign Nationals can only invest in Indian Companies if they want to repatriate their money back to their country.

If the money is being invested solely for non-repatriation basis, money can also be invested in Partnership/ Prof. Firms also.

C. How a Foreign Company can invest in an Indian Company

1. By acquiring shares of an Indian company: A foreign company may subscribe the shares of an Indian Company at time of its incorporation or may purchase shares of an existing Indian Company

2. By incorporating an Indian Company in which the Directors of a Foreign company can invest. It will not be a subsidiary company but whole control shall be of Foreign Nationals/ NRIs in form of appointment of Indian Directors or via investment by the Foreign Nationals/ NRIs

3. By opening up a Liaison Office in India whereby the liaison office shall be like a branch office which shall be opened up for a period of 3 years, with approval of RBI, which in turn shall be responsible for promoting the business of Foreign company only and no any separate business shall be performed at the Liaoning office.

D. How a Foreign company can repatriate its money back to its origin country

A Foreign company can repatriate its money back in following ways only:

(i) A Foreign Company Foreign National/ NRI, being a shareholder, can sell its shares to any other person/ entity at Market Value, being valued by the Registered Valuer/ Merchant Banker, as the case may be. And can repatriate the money back, so received on sale of shares., or

(ii) By way of earning of dividend as the India Company can distribute the dividend to its shareholders and the foreign company, being the shareholder shall enjoy the dividend accordingly.

E. Mandatory points for starting a Foreign Subsidiary company/ or investment by a Foreign Company/ Foreign National

1. Sectoral CAP is required to be checked and confirmed from the RBI

2. One of the Director of the company should be a Resident of India as per Income Tax Provisions i.e. he must have been in India at least for 182 days in the Previous Financial Year

3. Foreign National can not be appointed as Managing Director. He shall however remain as Director of the company

4. If the Foreign National Director is not the working Director, no salary can be paid to him

5. Various approvals and intimations are required to be obtained from Reserve Bank of India from time to time

6. Board resolution must have been passed by the Foreign company authorising its directors to start an Indian company and to invest accordingly so as to make it a Subsidiary company.

F. Documents required for incorporating a Foreign Subsidiary company

1. At Least Two Directors, who must be Individuals and not any entity/ body corporate, and at least one of them should be from India who had been in India for at least 182 days in India in the Previous Financial Year.

2. PAN Card copy, Adhaar Card/ Driving License/ Passport copy/ Voter ID Card Copy, being an Identity Proof for an Indian Director

3. Passport copy as an Identity Proof for a Foreign National Director

4. Bank Statement/ Telephone bill/ Electricity Bill/ Mobile Bill as Address Proof both for Indian as well as Foreign Directors

5. All above documents should be self attested by the proposed directors/ subscribers

6. Documents of Foreign Nationals/ NRIs must be appostile/ Consulate from the ambassy of their concerned countries

7. Digital Signatures of the proposed Directors/ Subscribers

8. Business visa shall be the over advantage for foreign nationals if they intends to be the director of the company.

Hence, A Foreign company can invest in India company without any restriction of the Indian Government provided the sectors, in which foreign company need to invest comes under sectoral cap and proper compliances are being done by such Foreign company after incorporation and regular reporting is being done to Ministry of Corporate Affairs and Reserve Bank of India from time to time as per the India Laws.

Author Bio

Qualification: CS
Company: Mohit Saluja & Associates
Location: JALANDHAR, Punjab, IN
Member Since: 13 May 2017 | Total Posts: 63
Hi, This is CS Mohit Saluja, Graduate in Law and Post Graduate in Commerce & a Fellow member of the Institute of Company Secretaries of India, New Delhi, having more than 10 years of stringent experience in the field of Secretarial and RBI Matters, Company Law Board (CLB), Regional Director (RD) View Full Profile

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November 2020