PROCESS & PROVISIONS OF

INCORPORATION OF SUBSIDIARY OF COMPANY

Short Summary:

As per FEMA norms, Foreign Direct Investment (FDI) is prohibited for Proprietorship, Partnership Firm, and One Person Company. While investment in LLPs is permitted, it necessitates prior approval from the RBI.

Therefore, the most convenient and expedient method for NRI's and Foreign Nationals/entities to establish a business in India is by incorporating a Private Limited Company.

Typically, an Indian or foreign business entity establishes a "subsidiary company" or a "wholly owned subsidiary company" in India in order to grow its current commercial operations. The distinction lies in the fact that a 'subsidiary company' permits the parent business to exert more than fifty percent of the voting power, whereas in the event of a wholly owned subsidiary, the parent company exercises full control over the subsidiary company.

Questions:

Whenever an Indian company is formed as a "Subsidiary" of a foreign company. A plethora of inquiries surfaced, including:

a)   What information/documents are necessary from a foreign company?

b)   Is the presence of an authorized representative of a foreign company essential in India when signing documents?

c)   What are the regulations regarding Notary / Apostil, and other related provisions?

d)   Which ID Proofs / Identity proof of foreign subscribers required by the Company etc. etc.

e)   Can all directors be foreigners or is it necessary to have an Indian director?

f)    Can all the owners be foreign or is it necessary to have at least one Indian shareholder?

g)   Is it necessary for a foreign individual to have a PAN?

Several additional inquiries arose when considering the incorporation of a subsidiary of a foreign company. In this editorial, the author will attempt to address all issues and queries using a practical approach.

ü  Analogous Law:

This section corresponds to Section 33 (Registration of memorandum and articles) of the 1956 Act.

ü  Applicable Section:

Section 7 and 12 of Companies Act, 2013 along with provisions of FEMA in respect of Subscription Money from foreign Company.

ü  Applicable Rule(s)

Rule 8 to 18, 24, 25 and 38 of the Companies (Incorporation) Rules, 2014

SUBSIDIARY COMPANY:

A subsidiary company is often referred to as a sister company, while the company that exercises control over it is known as the parent company or holding company. The parent company holds the authority to control the subsidiary company, either in part or entirely.

Advantages of Indian Subsidiary Company

     i.       To enter Indian Market.

   ii.        Foreign Direct Investment (FDI) in India.

  iii.       Limited Liability of Shareholders

  iv.       Separate Legal Entity

NOTE (Some Important points):

     i.       A minimum of two directors is mandatory, with at least one director being an Indian resident.

   ii.        The parent company can hold 100% of the shares, or any combination of two foreign nationals can be shareholders. It is not mandatory to have an Indian resident as a shareholder.

  iii.       Foreign Director/ Shareholders doesn’t require to have PAN.

  iv.       In the documents are signed outside India, then the same have to be notarized by a public notary of the residence country and consularized or apostilled by the competent authority, as the case may be.

   v.        If the documents are signed in India, then copy of Business Visa and stamped passport, proving his/her presence in India at the time of signing is required.

  vi.       If the subscriber is a foreign entity, then the Incorporation documents should be signed by the representative of the foreign entity. An Authorization Letter duly stating the name of the Authorized Person and the number of shares subscribed should be notarized, consularized or apostilled, in the home country of the subscriber company.

vii.        The regulation of foreign investments in Indian companies is governed by the guidelines set forth by the Foreign Exchange Management Act (FEMA) and the Reserve Bank of India. When the holding company invests money in the share capital of the Indian subsidiary, it must adhere to the rules set by the Reserve Bank of India (RBI) as well as comply with the regulations outlined in the Companies Act of 2013.

viii.        India does not impose a minimum capital requirement for company registration.

  ix.       Every company in India must have a registered address that is officially recorded in government records.

   x.        By Companies (Amendment) Act, 2017 has replaced ‘affidavit’ under section and rules of Incorporation with the word ‘a declaration’. There is no need to prepare any affidavit for the Incorporation of Company.

  xi.       There are not any limits on the minimum authorized share capital for incorporating a company. It is possible to incorporate a company with each subscriber holding Rs. 1 share capital.

xii.        Having a DIN is not necessary during the incorporation process for first directors.

xiii.        Maximum 3 DIN can be applied through Incorporation form.

xiv.        In the case of foreign shareholders, E-MOA and E-AOA shall not be generated. It is required to attach physically signed MOA and AOA in the Spice Part B.

 xv.        There is no requirement for putting any professional declaration in INC-8.

xvi.        It is required to have DSC of all the Indian Directors/ Subscribers.

xvii.        As a promoter, you have the option to submit an application for Incorporation while also reserving a name through Spice Part B.

xviii.        GST, EPFO, ESIC, Professional Tax Registration and opening of Bank account can be done through Agile Pro S vide GST 128(E) dated 18^th February 2020 by rule 38A amended by (Amendment) Rules, 2020.

xix.        INC-9 – of foreign director / subscriber shall be on plain paper as apostille and notarized (if doesn’t have DIN). INC-9 Declaration by Indian subscribers and directors shall be auto generated after submission of Spice Part B.

xx.        A Private Company needs to have two directors whereas a public company need to have three directors, Minimum member to form a private company is two, and maximum is two hundred, whereas a public company need to have minimum of seven members.

xxi.        If one foreign company holds 100% of the shares. If the situation arises, the Company will authorize one individual to sign documents on their behalf and select a separate person as a Nominee to become the second shareholder of the Company.

xxii.        In case of Companies incorporated, with effect from the 26th day of January 2018, with a nominal capital of less than or equal to rupees 15 Lakhs on in respect of companies not having a share capital whose number of members as stated in the articles of associations does not exceed twenty, fee on Spice+ shall not be applicable.

INFORMATION/ DOCUMENTS REQUIRED FROM:

A.  FOREIGN COMPANY

a)   Apostilled copy of resolution of foreign Company mentioning the name of authorized representative, no. of subscription of shares.

b)  Apostilled copy of Charter of Foreign Company (MOA, AOA, Certificate of Incorporation, or any other equivalent document as per the country of Incorporation).

c)   Apostilled copy of ID Proof of authorized representative, if such person is non – resident of India.

d)  Name of one Resident Director.

e)   Name of Nominee (in case of incorporation of WOS)

f)    In case Director does not have a DIN, it is mandatory to attach- Proof of identity and residential address of the subscribers (Duly apostille or notarized in country of origin)

g)   Declaration from the foreign subscribers in respect of not having PAN. (Duly apostille or notarized in country of origin).

h)  NOC from the owner of the property.

i)    Proof of Office address (Conveyance/ Lease deed/ Rent Agreement etc. along with rent receipts)

For Incorporation of Company, it is required to file form SPICE+ (Simplified Proforma for Incorporation of company electronically)

Spice+ would have two parts viz.:

A.  Part A – Name Approval

·      First to apply for Name Approval and then proceed with the incorporation process.

·      Second, proceed to submit the application for Name Approval and Incorporation together in a single form.

STEP – I:

Spice PART A-for Name reservation for new companies.

Before application for name approval, foreign Company have to choose the name on basis of Rule 8A of (Companies Incorporation) Rules under Companies Act, 2013.

a)   In case of Subsidiary, foreign Company may use coin word of its name as coin word for Incorporation of Company in India to take the Benefit of Its goodwill in foreign County.

b)   [1]Foreign Company can apply the same name (name in foreign country) in India by using word “India” in its name.

c)   If foreign Company having any registered Trade Mark then it can use such trademark for Incorporation of Company in India.

d)   Any other name as decided by the Foreign Company.

I.        While selecting the name thought came into mind what are the documents/ information required for application of Name by foreign Company?

In case of Foreign Company using Its “Coin” word or “Trademark” following Documents / information required:

A.  Login on MCA Website

An application for reservation of name shall be made through the Web Service available at www.mca.gov.in by using web service on MCA V3 Portal through web form Spice+ Part A (Simplified Proforma for Incorporating Company Electronically).

Applicants have to login into their account on MCA Website (Business User or Register User). (Pre-existing users can use earlier account or new users have to create a new account.)

Information Required: At the time of filing of Name application, the applicant must have the following information. (Desired Name, Desired Object along with Object Code). Two proposed name can be apply altogether.

Details required to be mentioned in form for Name Application:

(i)   Class of Company (whether Private, Public, OPC)

(ii)  Category of Company (whether Company limited by shares, limited by Guarantee or unlimited)

(iii)Sub-category Union Government, State Government, Non-Government Company, Subsidiary of Company incorporated outside India)

(iv) Main Division of Industrial Activity (enter number belonging to Industrial Activity)

(v)  Description of main division

(vi)  Particulars of Proposed or Approved Name.

(User has to enter the name he wants to reserve, for incorporation of a new company. Users are requested to ensure that the proposed name selected does not contain any word which is prohibited under Section 4(2) & (3) of the Companies Act, 2013 read with Rule 8 of the Companies (Incorporation) Rules, 2014. Users are also requested to read and understand Rule 8 of the Companies (Incorporation) Rules, 2014 in respect of any proposed name before applying for the same.

Stakeholders are requested to also check the Trademark search to ensure that the proposed name is not in violation of provisions of Section 4(2) of the Companies Act, 2013, failing which it is liable to be rejected.

(i)  Choose File (Any attachment)

You have the option to upload PDF documents. Attaching additional documents is only necessary if a name requires approval from a Sectoral Regulator or NOC, as per Companies (Incorporation) Rules, 2014.
It is important to note that only one file is permitted. If you have multiple files, it is recommended to scan them into a single document.

This option is available to upload the PDF documents. Like:

·      Apostille copy of Resolution of Foreign Company

Important Points (for Name Application):

     i.       Fees for Name application is Rs. 1000.

   ii.        [2]If an application came for resubmission, applicant have to resubmit the application within 15 days with ratification of the defects, if any.

  iii.       After approval of name, the name shall be reserved for 20 days from the date of approval.

  iv.       If the applicant wants, then by payment of extra fees they can extend the period of Name from 20 Days to 60 days. (Fees Rs. 1000 for the first 20 days extension up to 40 days and Rs. 2000 for next 20 days extension up to 60 days)

   v.        Applicants have to further apply for Incorporation of Company through Spice Part B form from the same MCA ID on which Name has been reserved.

  vi.       For the Name application there is no requirement of any DIN or DSC of applicant.

vii.        In case of Subsidiary or WOS of foreign Company it is mandatory to attach Apostille copy of Board Resolution along with Spice Part A.

STEP – II:

Once the name is approved, the applicant must move forward with the Company Incorporation process within 20 days of name approval (unless an extension is requested by paying an additional fee). For Incorporation of Company as mentioned above, applicant have to file Spice+ Part B on MCA Website.

Before start to fill Spice+ Part – B applicant should arrange the following documents and prepare the following documents:

a)   Preparation of Documents for Incorporation of Company:

Once the name is approved, the applicant must prepare the documents listed below.

i.        Digital Signature of all the Indian Subscribers and Directors.

If they do not have Digital Signature, then immediately apply for the same.

ii.        Proof of registered office address (Conveyance/ Lease deed/ Rent Agreement etc. along with rent receipts), if any.

iii.        Copy of the utility bill of registered office. It should not be older than two months. (Electricity Bill, Water Bill, Gast Bill, Telephone Bill etc.)

iv.        NOC from the owner of the property. ₍on plain paper and NOC from the person whose name mentioned on utility bill₎

v.        In case of subscribers/ Director does not have a DIN, it is mandatory to attach Proof of identity and residential address of the subscribers/ Directors as mentioned below i.e.

In case of Foreign Individual:

·      Apostille & Notarized Self-attested copy of Passport.

·      Apostille & Notarized Self-attested copy of Driving License

·      Apostille & Notarized Self-attested copy of Bank Statement/ Utility Bill; anyone (not older than two month)

In case of Indian Individual:

·      Self-attested copy of PAN.

·      Self-attested copy of Driving License/ Voter ID/ Passport

·      Self-attested copy of Bank Statement/ Utility Bill; anyone (not older than two month)

vi.        Copy of Photograph of two person authorized for ESIC, EPFO and Bank account documentation. (This person can be proposed directors or any outsider).

vii.        Apostille & Notarized Self-attested copy of Board Resolution of Foreign Company authorizing a person on behalf of them.

viii.        Drafting of MOA & AOA.

ix.        Drafting of PAN Declaration from Foreign Person (Director/ Subscriber).

x.        Drafting of INC-9 of Foreign Director/ Subscriber.

b)   Fill the Information in Spice+ Part B:

Once all the above-mentioned documents is available. Applicant has to fill the information in the e-form “Spice+ part B”. List of Information required from Subscribers/ Directors are given at the end of the article.

Traits of Spice+ Part B form:

i.        Web based: This form is web-based. All the necessary information can be filled out online. Once the information form is completed, you can download it to attach your DSC.

ii.        Online Information: This form once online information filed will be save there only and can be access in dashboard of the Log in ID.

iii.        Fill details of PAN & TAN:

It is mandatory to mention the details of PAN & TAN in the Incorporation Form Spice+ Part B. Link to find out of Area Code to file PAN & TAN are given in Help Kit of SPICE+.

iv.        Details of Registered Office:

The applicant must mention the address of the registered office in this form. Applicants have to mention the Latitude and Longitude of the registered office address.

Note: If the applicant has not yet determined the registered office address at the time of incorporation, it is in accordance with the Act. It is important to include the correspondence address in Spice Part B and submit INC 22 within 30 days of incorporating the company with the registered office address.

v.        Attachment of MOA & AOA:

The applicant have to prepare the MOA & AOA in physical. In case authorized representative of foreign company is resident of foreign country then such MOA and AOA needs to be apostille and notarized in their country.

vi.        Generation of Linked Forms: After complete filing of information in web-based form, applicant have to save the form. After  that applicant have to click on mini dashboard in their login ID to fill other forms.

c)   Fill details of GST, EPFO, ESIC, BANK Account in AGILE PRO-S:

After proper filing of SPICE+ Part B, applicant has to move on to filling out information in the AGILE PRO form Dashboard Link. All the information which are common in PART-B and AGILE PRO shall be auto fill in AGILE Pro. It is also web based form.

§  GST: If Company wants to apply for GST it has to select YES in the form and fill the information in the form.

§  EPFO/ ESIC: It is mandatory to apply for ESIC and EPFO.

As per their concerned department company not required to file return till the date applicability of provisions of same on such company, if company has applied for Dormant Status on their website.

§  Bank Account: It is mandatory to open a bank account through this form. The bank account branch shall be assigned according to nearest branch to the Registered office of the Company.

NOTE (Some Important points):

 i.        The company must mention the main business activity in this form also.

ii.        The company must give the details of two authorized people to deal with ESIC, EPFO and Bank account formalities (this person can be any one of the directors or outsiders also).

iii.        Need to attach a photograph of both authorized persons.

iv.        Need to mention mobile no and email ID of an authorized person.

v.        OTP shall be generated on Mobile and Mail ID of authorized person.

vi.        Need to mention the jurisdiction of Police Station.

vii.        Details of ESIC and EPFO office as per jurisdiction of registered office.

viii.        The person who is signing Spice Part B Digitally the same person shall affix his Digitals on Agile Pro.

d)   Fill details of INC-9:

INC-9 shall also be generated web-based for the Indian Director/ Subscribers or in case if foreign subscriber/ director holds DIN.

e)   Download PDF of all the web-based forms-:

Once the user clicks on the save button for all the forms such as Spice Part B, Agile Pro, and INC-9, they will need to download these forms in order to obtain digital signatures from the director and professionals.

f)    Filing of forms with MCA-:

Once all the above-mentioned forms are completed by the applicant and have been digitally signed, they can be uploaded as linked forms on the MCA website. The payment for these forms can then be made.

g)   Certificate of Incorporation-:

POINTS TO REMEMBER WHILE FILLING THE INFORMATION IN FORM:

 i.        Maximum details of TWENTY (20) directors can be mention in Incorporation form..

ii.        Maximum THREE (3) directors are allowed for filing application of allotment of DIN while incorporating a Company.

iii.        Applicant can apply the Name also in this form.

iv.        Applying for PAN/TAN/EPFO/ESIC/Bank Account will be compulsory for all fresh incorporation applications filed in the new version of the SPICe+ Part B form.

v.        Companies can apply for GST, also through AGILE PRO form.

FEATURES - SINGLE WINDOW FORM:

In the past, individuals had to go through a series of steps to incorporate a company, including applying for a DIN, getting approval for the name availability, filling out a separate form for the first director, providing a registered office address, and obtaining PAN and TAN numbers. However, this form serves as a convenient and streamlined process for incorporating a company.

This form can be used for the following purposes:

Ñ     Application of DIN (upto 3 Directors)

Ñ     Application for Availability of Name

Ñ     No need to file separate form for first Director (DIR-12)

Ñ     No need to file separate form for address of registered office (INC-22)

Ñ     No need to file separate form for PAN & TAN

i.        Whether Companies are required to make payment of Stamp Duty in case of incorporation of Company with authorized Capital of Rs. 15 Lakh or below?

ii.        How many DIN can be applied through SPICE+ Form?

Maximum 3 (Three) DIN can be applied through SPICE+ form.

iii.        Whether there is need to file any separate form for PAN & TAN?

1.   Obtain engagement letter from subscriber: - As per certification in Spice+ Part B, a professional declares that he has been engaged for the purpose of certification. Therefore, it is advisable to obtain an engagement letter.

2.   Verification of original records pertaining to registered office: - As per certification in Spice+ Part B, a professional declares that he has verified all the particulars(including attachments) from original records.

3.   Ensure all attachments are clear enough to read: - As per certification Spice+ Part B, a professional declares that all attachments are completely and legibly attached.

4.   Ensure registered office of the company is functioning for the business purposes of the company: - - As per certification in Spice+ Part B, a professional declares that he has personally visited the registered office.

5.   Take a declaration to the effect that all the original documents have been handed over after incorporation. Since as per section 7(4) copies all documents/information as originally filed should be preserved at the registered office of the company, therefore a professional should take a declaration while handing over the incorporation documents.

6.   MCA Circular 10/2014: - According to this circular ROC/RD in case of omission of material fact or submission of false/incomplete/ misleading information can after giving opportunity to explain refer the matter toe-governance division of MCA, which in turn may initiate proceedings under section 447 and/or ask the respective professional institute to take requisite disciplinary action.

Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com). 

Disclaimer: The entire contents of this document have been prepared based on relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness, and reliability of the information provided, I assume no responsibility, therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not professional advice and is subject to change without notice. I assume no responsibility for the consequences of the use of such information. 

IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OFOR IN CONNECTION WITH THE USE OF THE INFORMATION