Only two business structures allow foreign investment in an Indian business entity, namely, a Limited Liability Partnership and a Private Limited Company. Though foreign investment in LLPs is allowed, however, it requires prior approval of the Reserve Bank of India (RBI) and Foreign Investment Promotion Board (FIPB). A Private Limited Company, on the other hand, allows foreign investment under the Automatic Approval route in most sectors.

Private Limited Companies have better recognition and standing in relation to an LLP. This enables them to have better access to bank loans and funds. Hence, it is generally preferred to incorporate a Subsidiary of a Foreign Holding Company as a Private Limited Company.

Section 2(46) of the Companies Act, 2013 defines Holding Company. A company is said to be the holding company if it owns at least 50% of the other company, has the authority to make management decisions and controls the company’s board of directors. A holding company may exist for the sole purpose of controlling and managing subsidiary companies.

• A subsidiary is a a company in which the holding company:
• (i) controls the composition of the Board of Directors; or
• (ii) exercises or controls more than 50% of the total share capital either on its own or together with one or more of its subsidiary companies.
• Section 2 (87) of the Companies Act 2013 defines the terms “subsidiary company” or “subsidiary” in relation to the holding company.

The share capital invested by the holding company is transferred to the bank account of the Indian subsidiary company by following the guidelines notified by the Reserve Bank of India (RBI) along with compliances under the Companies Act 2013 and Foreign Exchange Management Act.

• Directors: In a Private Limited Company there should be a minimum of two (2) directors. To become a director, a Director Identification Number (DIN) must be obtained. At least one of the Directors must be a Resident of India, who has stayed at least 182 days in the previous financial year but from Budget 2020 i.e. financial year from 2020-21, this period has been reduced to 120 days.
• Shareholders: A Private Limited Company requires at least two shareholders to register. The shareholders can be an individual or an entity represented by an authorised individual. A Private Limited Company can have up to 200 people as members as per the Companies Act, 2013. There is no requirement for the shareholder to be a resident of India.

Step 1: Acquire Digital Signature Certificate for Directors and Subscriber:

The first and foremost step to register a private limited company is to acquire a Digital Signature Certificate (DSC) of the Directors and Subscribers to the MOA. Any e-form is filed with the Ministry after affixing the DSC of the authorised signatory for company incorporation. It is also required for the application of Director Identification Number (DIN) of the directors. Further, DSC of the shareholder is needed to file MOA and AOA.

Step-2: Name Approval Application:

The next step in company registration involves making an application for reservation of name of the proposed company. The application is to be made in 'Part A' of SPICe+ Form, where one can apply for maximum 2 names in order of preference. One shall keep in mind that the names applied are not identical or nearly resembling with any existing Company or LLP or registered trademark.

Step-3: Drafting of Memorandum of Association (MOA) and Articles of Association (AOA)

The Memorandum of Association (MOA) and Articles of Association (AOA) are drafted and notarized, consularized or apostilled, as the case may be in the home country of the shareholder company.

Step-4: Application for Certificate of Incorporation:

After submitting 'Part A' of SPICe+ and upon choosing to proceed with incorporation, 'Part B' is enabled for making an application of for Certificate of Incorporation in SPICe + form and AGILE-PRO Form. AGILE stands for Application for Goods and Services Identification Number, employees' state insurance corporation registration plus employees' provident fund organization registration.

After due verification of the application and documents provided, the concerned ROC may grant the Certificate of Incorporation (COI). It is a conclusive proof of the existence of the company, wherein the date of incorporation, Company Identification Number (CIN), Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) are mentioned with the sign and seal of the registrar.

Memorandum of Association (MOA) and Articles of Association (AOA) are the two most important documents for any company and mark the last step in the process of registering a Company. MOA of the company states the scope of operations of the company, whereas AOA states how the company will be carrying the operations as per the Companies Act,2013.

As per the Ministry of Corporate Affairs, Digital Signature Certificates (DSC) are the digital equivalent (that is electronic format) of physical or paper certificates. Few examples of physical certificates are drivers' licenses, passports or membership cards. Certificates serve as proof of identity of an individual for a certain purpose; for example, a driver's license identifies someone who can legally drive in a particular country. Likewise, a digital certificate can be presented electronically to prove one’s identity, to access information or services on the Internet or to sign certain documents digitally. Physical documents are signed manually, similarly, electronic documents, for example e-forms are required to be signed digitally using a Digital Signature Certificate.

A licensed Certifying Authority (CA) issues the digital signature. Certifying Authority (CA) means a person who has been granted a license to issue a digital signature certificate under Section 24 of the Indian IT-Act 2000.

Any form filed for online company registration in India shall be submitted only after affixing the DSC of an Applicant. Also, the directors will require DSC for DIN application and the subscribers to MOA and AOA shall possess DSC for submitting e-forms for incorporation.

Director Identification Number (DIN) is a unique identification number required for a person to become a director of a company. DIN is issued by the ROC office(Ministry of Corporate Affairs). DIN is to be mentioned in documents while appointing a person as a director of a company. All present or proposed Directors must have a DIN. It never expires and a person can have only one DIN, further with the same DIN, it allows an individual to be a Director in any Company or Designated Partner in an LLP.

SPICe stand for Simplified Proforma for Incorporating a Company Electronically. As per the Ministry of Corporate Affairs, while SPICe is an eform, SPICe+ is an integrated Web form offering 10 services by 3 Central Govt Ministries & Departments. (Ministry of Corporate Affairs, Ministry of Labour & Department of Revenue in the Ministry of Finance) and One State Government (Maharashtra), thereby saving as many procedures, time and cost for starting a business in India. SPICe+ is part of various initiatives and commitment of Government of India towards Ease of Doing Business (EODB).

It is an all-inclusive form that helps incorporate a company with a single application for reservation of name, incorporation of a new company and/or application for allotment of DIN hence fast tracking the process of Company Incorporation.

1: Advance Reporting & KYC Form

The Indian subsidiary company should file a report specifying he amount of consideration for issue of shares /Convertible debentures under the FDI Scheme. This form should be filed with the RBI within 30 days of receiving funds from foreign investor(s).

2: FC-GPR Form

The company has to file form FC-GPR with the RBI within 30 days from the date of issue of shares along with:
– A Certificate from the Company Secretary certifying that the company has complied with the procedure laid down under the Foreign Direct Investment (FDI) Scheme, and,
– A certificate from a Chartered Accountant indicating the valuation of the shares issued, if required.

3: Foreign Liabilities and Assets (FLA) Form

An annual return on Foreign Liabilities and Assets is required to be submitted reporting all the investments received during the year.

*This is not included in the Indian Subsidiary Incorporation Package. Please contact [email protected] for more information.

1: Conduct the First Board Meeting:

As per Section 173(1), of The Companies Act 2013, the company shall hold a meeting of the Board of Directors in less than 30 days from the date of its incorporation. Directors are permitted to attend the meeting either in person or through video conferencing.

2: Open a Bank Account:

Companies need to have a bank account even before approaching the authorities for company incorporation. Because the company is an artificial entity, the transactions cannot be done in the name of any natural person.

3: Appoint a Statutory Auditor:

The Board of Directors must appoint a practising Chartered Accountant as an auditorwithin 30 days of incorporation of the company by filing Form ADT-1. If the Board of Directors of Company fail to appoint an auditor within 30 days of incorporation, the shareholders of the company will have to appoint an auditor within 90 days of incorporation by calling Extra-ordinary General Meeting. The tenure of the first auditor of the Company shall be up to conclusion of first Annual General Meeting of the company.

4: Submit the Commencement of business form:

The company shall obtain a certificate of commencement of business. There is a requirement to file a disclosure made by the directors of the company stating that every subscriber has paid the amount due on the shares. This declaration has to be filed by the company within a period of 180 days of the date of incorporation of the company in Form INC 20A.