Setting up a subsidiary is a complicated task. Significant time and resources are necessary to establish and maintain a company in India. The rules and regulations vary by state and region, adding another layer of complexity. Instead of dealing with the confusion alone, G-P is here to help.
How to establish an India subsidiary
Companies need to consider multiple factors before setting up a subsidiary in India. Start by determining which sector or industry you are entering. India has different foreign direct investment (FDI) regulations for specific sectors, so check for prior approval from the Reserve Bank of India before establishing a subsidiary.
Incorporating any company in India is a long and challenging process that can cost a significant amount of time and resources before the setup is complete. Most businesses choose a private limited or public limited subsidiary based on how active they will be in the country. The incorporation process includes these steps:
- Reserve a business name through the Registrar of Companies (ROC).
- Obtain a Director Identification Number (DIN) online.
- Obtain a Digital Signature Certificate (DSC) online.
- Complete and file an incorporation application online.
- Prepare the Memorandum and Articles of Association.
- After proper review and approval by local authorities, obtain the corresponding certificate of incorporation. Permanent
- Account Number (PAN), Tax Deduction and Collection Account Number (TAN), and Corporate Identity Number (CIN) are allotted at the time of registration.
Notarization and apostille/legalization of documents is mandatory in case of international subscribers of directors. Once the India subsidiary has been incorporated, a declaration of receipt of subscription amount and verification of registered office shall be filed within 182 days of incorporation and prior to commencement of business. The first auditor of the company should also be appointed.
Additional registrations may be applicable such as the Employee Registration with Employees State Insurance Corporation (ESIC) and Employees’ Provident Fund Organization (EPFO).
India subsidiary laws
India subsidiary laws vary considerably by location. Every state in India operates almost like a separate country. Plus, each one has different cultural practices and languages.
The rules for incorporation also differ based on what type of subsidiary you choose to set up — public or private:
- Private limited company: These are ideal for small or middle-sized businesses. They are the most popular because of the fewer reporting requirements. India has no capital requirement for private companies, but most incorporate with an amount of capital. Private companies need to have at least 2 members and 2 directors (15 maximum). Companies will also need to prepare financial statements and undergo a statutory audit within 6 months of the end of the fiscal year.
- Public limited company: A public company must follow the Securities and Exchange Board of India’s (SEBI) regulations. According to India’s subsidiary laws, you will need a minimum paid-up capital and at least 7 subscribers. Public companies also require a minimum of 3 directors but no more than 15. The accounting and auditing requirements are the same for public and private subsidiaries.
The corporate maintenance of an Indian subsidiary also entails a significant investment of time and resources. The first Annual General Meeting of the company must be held within 9 months from the date of closing of the first financial year and subsequent Annual General Meetings withing 6 months from close of year. Additionally, quarterly board meetings should be held; the maximum gap between 2 meetings should not exceed 120 days, and every director is required to attend at least 1 meeting per year. Also, annual statement of account and annual return must be filed to the Registrar of Companies within the established deadlines.
In addition, several committees and policies must be put in place by an external provider with enough expertise to maintain the company in compliance with all applicable regulations.
Benefits of establishing an India subsidiary
Setting up a subsidiary in India offers several advantages. A subsidiary has limited liability from the parent company, and shareholders are limited by the amount they invest. This arrangement protects the parent company from any losses or potential litigation. Setting up a subsidiary allows companies to tailor workplace rules and company culture that are different from the parent company.
Other important considerations
However, every company that establishes a subsidiary faces particular challenges. Both time and money will be required to complete every step of the incorporation process from start to finish. In addition, you will need to hire people with expertise in India subsidiary laws and compliance or engage with a local lawyer to make sure that the company remains compliant with India’s laws and regulations.
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