Setting Up a Foreign Subsidiary Company in India

Foreign investors have multiple avenues to commence business operations in India:

• Wholly Owned Subsidiary (WOS): A foreign company can establish a WOS in India, where it holds 100% of the equity. Alternatively, a subsidiary with more than 50% foreign ownership is also possible.
• Joint Venture: Partnering with an Indian entity allows shared ownership, management, and control, providing access to local market expertise and resources.
• Branch Office: Enables activities like import/export, consultancy, R&D, and representation, though manufacturing is not permitted.
• Liaison (Representative) Office: Functions as a communication and promotion channel for the foreign company without engaging in direct commercial operations.
• Project Office: Suitable for specific projects, particularly in infrastructure and construction.
• Limited Liability Partnership (LLP): Offers limited liability while allowing direct business management. FDI in LLPs is permitted under the automatic route in sectors allowing 100% foreign investment.
• Direct Investment in Indian Companies: Foreign investors can invest in existing Indian firms via equity shares, convertible preference shares, or convertible debentures. Depending on the sector and investment size, approvals may follow the automatic route or government route.

Each option carries distinct regulatory, tax, and operational considerations, and the choice depends on the investor’s business strategy and compliance requirements.

Wholly Owned Subsidiary (WOS) vs. Subsidiary Company

A Wholly Owned Subsidiary (WOS) is entirely owned by the foreign parent company, giving it complete control over operations and decisions. In contrast, a subsidiary company may have partial ownership by the foreign entity (over 50%) and can include other shareholders, which may affect control and management structures.

Single-Window Company Registration via SPICe+

The Ministry of Corporate Affairs (MCA) has simplified foreign subsidiary registration through the SPICe+ (Simplified Proforma for Incorporating Company Electronically) form. This single-window form integrates multiple services:

• PAN and TAN issuance
• Director Identification Number (DIN)
• GST registration
• Professional Tax Registration
• Shop & Establishment Registration

This consolidation significantly reduces the time and effort required for new companies to complete these registrations.

The AGILE PRO form complements SPICe+ by enabling simultaneous applications for:

• GST Identification Number (GSTIN)
• Employees’ State Insurance Corporation (ESIC)
• Employees’ Provident Fund Organisation (EPFO) registrations
• Professional Tax Registration (for Maharashtra, Karnataka & West Bengal)
• Shop & Establishment Registration (for Delhi)

By streamlining these processes into unified forms, the MCA promotes ease of doing business in India and helps new businesses grow by reducing administrative burdens and ensuring regulatory compliance.

Options for Foreign Investors to Start a Business in India

Foreign investors can choose from several business structures in India, depending on their objectives and type of operations:

1. Indian Company:

• Joint Venture (JV): Partner with Indian entities to form a jointly owned company.
• Wholly Owned Subsidiary (WOS): Establish a company fully owned (100% shares) by the foreign investor.
• Structure Options: Both JVs and WOS can be set up as Private Limited or Public Limited Companies, fully complying with the Companies Act, 2013.

2. Foreign Company Presence in India:

• Liaison Office: Acts as a representative office for the parent company in India, primarily for promotion and communication purposes.
• Branch Office: Conducts specific activities such as export/import, consultancy, research, or other permissible operations on behalf of the parent company.
• Project Office: Created for executing a specific project under a contract, focusing solely on project-related activities.

3. Limited Liability Partnership (LLP):

• LLP Formation: Set up under the LLP Act, 2008, allowing investors to manage the business while enjoying limited liability protection.
• FDI in LLPs: Allowed under the automatic route in sectors or activities permitting 100% FDI without any FDI-linked performance conditions.
• Learn More: [Benefits of LLP Registration and Annual Compliances]

Regulatory Considerations: Sectoral Caps & Approvals

• Sectoral Caps: Foreign investment in India is regulated by sector-specific caps, defining the maximum percentage of foreign ownership allowed.
• Required Approvals: Certain sectors may require approvals from regulatory authorities like the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority (IRDAI), or other sector-specific bodies.
• Prohibition on Round-Tripping: Investments made by Indian residents in foreign entities and then reinvested back into India are not permitted.

Each business structure has its own regulatory, tax, and operational implications. Choosing the right model depends on the investor’s strategy, investment objectives, and compliance requirements.

RBI Guidelines for Foreign Offices in India

The Reserve Bank of India (RBI) regulates the establishment and operation of Liaison Offices (LO), Branch Offices (BO), and Project Offices (PO) of foreign companies in India. These guidelines cover:

• Eligibility criteria for setting up each type of office
• Permitted activities and business scope
• Reporting and compliance requirements
  
• Operational and remittance rules

Additionally, under the Companies Act, 2013, a foreign company must appoint a resident Indian agent with a valid PAN (Permanent Account Number) to receive notices and communications in India. This ensures proper legal representation and compliance with Indian laws.

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Key Differences: Private Company, Public Company, OPC & LLP

Feature	Private Limited	Public Limited	One Person Company (OPC)	LLP
Ownership	2–200 members	Minimum 7 members	1 member	Partners (minimum 2)
Share Transfer	Restricted	Freely transferable	N/A	N/A
Compliance	Moderate	High	Moderate	Moderate
Fundraising	Cannot issue shares to public	Can raise funds from public	N/A	Can raise capital from partners/third-party investors
Board Requirements	At least 1 resident director	At least 1 resident director	1 director	N/A
Women Director	Applicable to certain companies	Applicable to certain companies	Not mandatory	N/A

Key points before registration with foreign individuals:

• Resident Director: Every company must have at least one director who has stayed in India for 182 days or more in the financial year (Sec. 149(3), Companies Act, 2013).
• Companies may appoint more than 15 directors via special resolution. Certain classes of companies must also have at least one woman director (Rule 3, Companies (Appointment and Qualification of Directors) Rules, 2014).

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Mandatory ESIC & EPFO Registration for Subsidiary Companies

To simplify compliance, the Ministry of Labour & Employment, in collaboration with the Ministry of Corporate Affairs (MCA), integrated registrations for GST, EPFO, ESIC, and Profession Tax (for Maharashtra) with company incorporation through SPICe+ and AGILE-PRO forms.

• Effective February 15, 2020, new Public, Private Limited Companies, and OPCs must register for EPFO and ESIC during incorporation via the MCA portal.
• The Shram Suvidha Portal no longer handles these registrations for new companies.
• Compliance with the Employees’ Provident Fund & Miscellaneous Provisions Act, 1952 and Employees’ State Insurance Act, 1948 is still mandatory once employee thresholds are met.

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Eligibility Criteria for Foreign Business Structures

Liaison Office (LO):

• Must have a profit-making track record for the last 3 financial years in the home country.
• Minimum net worth of $50,000 or equivalent.

Branch Office (BO):

• Profit-making track record for the last 5 financial years.
• Minimum net worth of $100,000 or equivalent.

Project Office (PO):

• No specific financial requirements.

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Remittance Guidelines

Liaison Office (LO):

• Remittance not applicable.

Branch Office (BO):

• Permitted to remit profits net of applicable taxes after submitting required documents.

Project Office (PO):

• Intermittent remittances are allowed during the project or upon winding-up, subject to the approval of an AD Category 1 bank.

Business Registration Process in India

Foreign and domestic investors can establish a company in India by following a structured registration process:

1. Check Name Availability

• Verify that your proposed company name or registered trademark is available for incorporation.
• Reserve the name using SPICe Part-A on the MCA portal, or submit the name reservation along with SPICe+ Part A & B in a single application.
• Tip: Choose a unique, meaningful name that complies with MCA naming guidelines.

2. Obtain Digital Signature Certificate (DSC)

• A DSC is required for at least one proposed director of the company.
• Directors’ DIN (Director Identification Number) applications can only be submitted via SPICe+.
• Note for Foreign Subscribers/Directors: All documents must be properly notarized and apostilled/legalized to meet Indian legal requirements.

3. Complete and Submit Form INC 32 (SPICe+)

• Fill out SPICe+ (INC 32) for Private Limited Company registration.
• PAN and TAN are automatically generated based on the information provided in the form.

4. File eMoA and eAoA

• Submit the electronic Memorandum of Association (eMoA – INC 33) and electronic Articles of Association (eAoA – INC 34) through SPICe+.
• For foreign subscribers, physical MoA and AoA must also be executed, notarized, and apostilled/legalized before submission.

5. SPICe+ Upload and Fee Payment

• Upload the completed SPICe+ forms and make the necessary fee payment.
• Stamp duty applies, but MOA fees are nil for share capital up to ₹15 lakh, as part of India’s “Ease of Doing Business” initiative.

6. Verification and Scrutiny by CRC

• The Central Registration Centre (CRC) reviews all submitted documents and forms.
• Any discrepancies or required changes are communicated, which must be addressed before approval.

7. Obtain Certificate of Incorporation (CoI)

• After approval, the company receives its Certificate of Incorporation (CoI).
• The Corporate Identification Number (CIN), PAN, and TAN are issued along with other registrations like Professional Tax and Shop & Establishment, if applicable.

8. Filing Declaration and Verification

• Companies with share capital must file a declaration of receipt of subscription amount and verify the registered office within 182 days of incorporation, before commencing business.

Why Incorporate a Company in India or Make FDI?

India remains one of the fastest-growing economies globally, attracting strong Foreign Direct Investment (FDI).

• From April 2000 to December 2023, total FDI inflows reached $971.521 billion, with FDI equity inflows of $666.477 billion (Department of Promotion of Industry and Internal Trade, Government of India).
• To stimulate growth, the Atmanirbhar Bharat Abhiyan initiative, announced by Hon’ble PM Shri Narendra Modi, introduced a comprehensive economic package exceeding $270 billion (~10% of India’s GDP).
• Despite global uncertainties, India is projected to achieve 7.6% GDP growth in FY 2023-24 (Ministry of Finance), highlighting its resilience and investment potential.

These factors make India an attractive destination for investors seeking long-term growth opportunities and access to a rapidly expanding market.

Disclaimer: The content on this website is for informational purposes only and does not constitute legal, financial, or professional advice. Please consult qualified experts before acting on any information. K M GATECHA & CO LLP accepts no liability for errors, omissions, or outcomes from the use of this content. This site is not an advertisement or solicitation.