Establishing a subsidiary in India is a common strategy for foreign companies seeking a lasting presence in one of the world’s fastest-growing economies. This structure is formally recognized as a separate legal entity, most frequently a Private Limited Company, incorporated under the Indian Companies Act, 2013. Adopting this model provides the foreign parent company with the advantage of limited liability, shielding its overseas assets from the liabilities incurred by its Indian operations. The subsidiary acts as a fully domesticated Indian company, streamlining access to the local market and ensuring compliance with domestic regulations while maintaining operational control.
Understanding the Subsidiary Structure in India
The standard route for establishing a foreign subsidiary in India is incorporating a Private Limited Company under the Companies Act, 2013. This structure provides the Indian entity with a distinct legal identity, separate from its foreign parent. Treating the company as an Indian entity for regulatory purposes simplifies market operation and local contracts.
Incorporation requires a minimum of two shareholders and two directors. Although the foreign parent can be the majority or sole shareholder, a nominee shareholder is often appointed for a Wholly Owned Subsidiary to meet the statutory requirement of two shareholders. A specific mandate requires that at least one appointed director must be a resident of India, defined as a person who stayed in India for a minimum of 182 days in the immediately preceding financial year.
This framework is generally favored over alternative entry strategies, such as a Branch Office or Liaison Office, because it allows for full-scale commercial activities, manufacturing, and long-term investment. The Private Limited Company structure grants operational independence and flexibility in raising domestic capital, unlike a Branch Office which carries unlimited liability for the parent. The parent company maintains strategic oversight through its majority shareholding and control over the Board of Directors.
Essential Pre-Incorporation Requirements
Before initiating the formal application, proposed directors must secure a Digital Signature Certificate (DSC) and a Director Identification Number (DIN). The DSC is mandatory for all directors, including foreign nationals, as it digitally signs all e-forms submitted to the Ministry of Corporate Affairs (MCA). Obtaining the DSC is a prerequisite for applying for the DIN, a unique eight-digit identification number allotted to prospective directors.
The next step is reserving a name for the proposed subsidiary by filing Part A of the integrated SPICe+ form on the MCA portal. The name must adhere to the Companies Act, 2013 naming guidelines, prohibiting names identical or too closely resembling an existing company. A beneficial provision allows the foreign parent company to use its original name for the subsidiary, often with the addition of a geographical descriptor like “India.”
Documentation executed outside India requires authentication. Key documents, such as the board resolution authorizing incorporation, the Memorandum of Association (MOA), and the Articles of Association (AOA), must be notarized. They must then be either Apostilled (if the country is a Hague Convention signatory) or legalized by the Indian Consulate or Embassy. This authentication process is also required for the identity and address proofs of all foreign directors and subscribers before submission to the Registrar of Companies (RoC).
A registered office address within India is mandatory and must be documented before the incorporation application is filed. While there is no minimum Authorized Share Capital requirement, the amount should reflect the company’s planned scale of operations and investment. Proof of the registered office, such as a lease deed or rent agreement, along with a No-Objection Certificate (NOC) from the owner and a recent utility bill, must be prepared for submission.
Step-by-Step Procedure for Incorporation
The core of the incorporation process involves filing the Simplified Proforma for Incorporating Company Electronically Plus (SPICe+) on the MCA portal. This comprehensive web-based application streamlines company formation by combining multiple applications into one submission. SPICe+ is divided into two sections: Part A for name reservation, and Part B for the main incorporation and associated mandatory registrations.
Once the name is approved via Part A, the applicant completes Part B, providing detailed information on the capital structure, registered office, and particulars of directors and subscribers. Part B also serves as the application for DIN allotment for up to three new directors. This section integrates applications for several statutory registrations essential for the company’s operation.
The integrated filing includes the AGILE-PRO-S form, which facilitates concurrent registration for several key identifiers and services:
- Allotment of the Permanent Account Number (PAN) and the Tax Deduction and Collection Account Number (TAN).
- Mandatory registration for the Employees’ Provident Fund Organisation (EPFO) and the Employees’ State Insurance Corporation (ESIC).
- Opening of a corporate bank account with a selected bank.
- Optional registration for Goods and Services Tax (GST), if required for the business activity.
The Memorandum of Association (MOA) and Articles of Association (AOA), detailing the company’s objects and internal management rules, must be attached to the SPICe+ form. Required declarations from directors (Form DIR-2) and subscribers (Form INC-9) must be digitally signed using the authorized signatories’ DSCs. After successful submission and fee payment, the RoC scrutinizes the application and issues the Certificate of Incorporation (COI), officially establishing the foreign subsidiary as an Indian company.
Immediate Post-Incorporation Compliance
The Certificate of Incorporation triggers time-bound compliance requirements. The immediate priority is opening the subsidiary’s bank account, often facilitated through the AGILE-PRO-S process, to receive the Foreign Direct Investment (FDI) capital from the parent company. This inward remittance of share subscription money must be received through proper banking channels, ensuring compliance with the Foreign Exchange Management Act (FEMA), 1999 regulations.
The most time-critical compliance under FEMA is reporting the FDI inflow to the Reserve Bank of India (RBI). Within 30 days of allotting shares to the foreign investor, the subsidiary must file Form FC-GPR (Foreign Currency – Gross Provisional Return) via the RBI’s Foreign Investment Reporting and Management System (FIRMS) portal. This filing is mandatory for all issuances of eligible securities to non-resident investors. Required documentation includes the Foreign Inward Remittance Certificate (FIRC) from the bank and a valuation certificate from a Chartered Accountant or Merchant Banker.
The FC-GPR filing requires a certificate from a Company Secretary or Chartered Accountant confirming compliance with the Companies Act, 2013, and FEMA regulations regarding share allotment. Timely submission is crucial, as delays beyond the prescribed 30-day window attract significant compounding penalties from the RBI. If not obtained through the integrated SPICe+ process, the company must ensure it has secured its Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN), which are prerequisites for all tax-related transactions in India.
Regulatory Framework and Ongoing Obligations
Once incorporated, the foreign subsidiary is subject to the full spectrum of Indian corporate and tax laws, requiring continuous compliance. Under the Companies Act, 2013, the subsidiary must conduct a minimum of four Board of Directors meetings annually, with no more than 120 days between consecutive meetings. The company must also hold an Annual General Meeting (AGM) within six months of the financial year end to approve financial statements and conduct routine business.
The subsidiary must file its annual returns and financial statements with the Registrar of Companies (RoC) using prescribed forms, such as Form MGT-7 (Annual Return) and Form AOC-4 (Financial Statements). These filings inform the regulatory body about the company’s shareholding, directorships, and financial performance. A statutory audit of the financial statements by a Chartered Accountant is mandatory for all companies, ensuring accounts adhere to Indian Accounting Standards.
Transactions between the Indian subsidiary and its foreign parent company must adhere to India’s transfer pricing regulations. These rules require that all cross-border transactions be conducted at an arm’s length price. The subsidiary must maintain detailed documentation and often undergo a separate Tax Audit to certify compliance with these tax provisions. Labor law compliance, such as contributions to the Employees’ Provident Fund (PF) and Employees’ State Insurance (ESIC), becomes mandatory upon hiring employees.