Indian Subsidiary Registration: A Gateway for Foreign Companies to Enter the Indian Market
Introduction
India is one of the fastest-growing economies in the world, offering immense business opportunities. For foreign companies looking to expand their presence, establishing a subsidiary in India is a strategic move that provides a local foothold, legal protection, and enhanced credibility.
An Indian subsidiary is a company incorporated in India but controlled by a foreign parent company. This allows foreign firms to operate through a fully owned or majority-owned entity, adhering to Indian laws while benefiting from local market access.
This blog explains what an Indian subsidiary is, why it’s important, the registration process, documents required, and the key advantages of this business structure.
What is an Indian Subsidiary?
An Indian subsidiary is a company incorporated under the Indian Companies Act, 2013, with the foreign parent company as a shareholder. The parent company holds a majority or full ownership stake and appoints directors to manage operations.
The subsidiary functions as a separate legal entity in India with its own liabilities, contracts, and compliance obligations. It is distinct from the parent company but benefits from the global brand and resources.
Why Register an Indian Subsidiary?
Foreign companies register subsidiaries in India for various reasons:
- Legal Entity in India: An Indian subsidiary is a locally incorporated company, giving it legal recognition to enter contracts, own property, and hire employees.
- Market Access: It enables direct access to India’s vast and growing market, with flexibility to sell products/services domestically and internationally.
- Brand Presence: Enhances credibility with Indian customers, suppliers, and government authorities by having a local base.
- Limited Liability: The subsidiary is a separate legal entity, limiting the foreign parent’s liability to the extent of its investment.
- Compliance with Indian Laws: A subsidiary can comply with Indian regulations such as labor laws, tax laws, and foreign exchange controls more easily.
- Tax Benefits: India has double taxation avoidance agreements (DTAAs) with many countries, which can optimize tax liabilities for subsidiaries.
Types of Subsidiaries in India
- Wholly Owned Subsidiary (WOS):
The foreign company owns 100% of the Indian company’s shares.
- Partly Owned Subsidiary:
The foreign company owns a majority but less than 100% of shares, with Indian investors holding the remainder.
Documents Required for Indian Subsidiary Registration
The registration process involves submission of several key documents for compliance and incorporation:
- Certificate of Incorporation of the Parent Company: Proof of existence of the foreign company.
- Board Resolution from Parent Company: Approving incorporation of Indian subsidiary and appointment of authorized signatories.
- Director Identification Number (DIN): For all proposed directors of the Indian subsidiary.
- Digital Signature Certificate (DSC): For authorized signatories filing electronic documents.
- Proof of Identity and Address: Passport and residential address proofs of directors.
- Registered Office Address Proof: Rental agreement or ownership proof for the Indian office.
- Memorandum of Association (MOA) and Articles of Association (AOA): Defining business objectives and internal governance.
- Declaration of Compliance: Statement by directors on adherence to the Companies Act.
Steps for Indian Subsidiary Registration
Step 1: Obtain Digital Signature Certificates (DSC)
All directors and authorized signatories must obtain DSC to sign electronic documents.
Step 2: Apply for Director Identification Number (DIN)
DIN is mandatory for all directors. Applications are made through the Ministry of Corporate Affairs (MCA) portal.
Step 3: Name Approval
Apply for company name approval through MCA portal. The name should be unique and follow naming guidelines.
Step 4: Draft MOA and AOA
Prepare Memorandum and Articles of Association detailing the subsidiary’s objectives, scope, and governance.
Step 5: File Incorporation Forms
Submit Form SPICe+ (INC-32) along with necessary documents electronically to MCA.
Step 6: Obtain Certificate of Incorporation
Once approved, MCA issues the Certificate of Incorporation confirming the subsidiary’s legal existence.
Step 7: Apply for PAN and TAN
Apply for Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) for tax purposes.
Step 8: Open Bank Account
Open a current bank account in the company’s name using the Certificate of Incorporation and other KYC documents.
Benefits of Indian Subsidiary Registration
1. Separate Legal Entity
The subsidiary operates independently with its own legal rights and liabilities.
2. Limited Liability Protection
The parent company’s financial risk is limited to its investment in the subsidiary.
3. Greater Credibility and Trust
Indian customers and business partners prefer dealing with locally registered companies.
4. Access to Local Resources and Talent
Enables easier recruitment and management of local employees.
5. Compliance with Indian Regulations
The subsidiary can directly comply with Indian labor laws, tax rules, and foreign exchange regulations.
6. Ability to Raise Capital in India
Subsidiaries can issue shares to local investors and raise funds within India.
7. Intellectual Property Protection
Can register trademarks, patents, and copyrights locally under Indian laws.
Challenges and Considerations
- Regulatory Compliance: Indian subsidiaries must comply with all statutory filings, tax returns, and labor laws.
- Cost and Time: Incorporation and ongoing compliance may involve higher costs than branch offices or liaison offices.
- Governance: The parent company needs to appoint competent directors and management locally.
- Foreign Investment Restrictions: Certain sectors require government approval for foreign direct investment (FDI).
Foreign Investment in India through Subsidiaries
The Indian government permits FDI under automatic or government route depending on the sector. Many sectors like IT, manufacturing, and services allow 100% FDI via subsidiaries.
Foreign investors should consult FDI policies to ensure compliance and obtain necessary approvals where required.
Conclusion
Setting up an Indian subsidiary is an excellent way for foreign companies to establish a strong local presence, enjoy limited liability, and capitalize on India’s growing economy.
While it requires adherence to Indian laws and compliance procedures, the benefits of legal recognition, operational flexibility, and market access far outweigh the challenges.
Foreign firms can choose between wholly owned or partly owned subsidiaries based on their investment plans and business strategies.
Professional guidance is advisable to navigate incorporation, licensing, and ongoing compliance smoothly.
