India being a developing country there is a lot of interest among foreign companies to start their operations in India. A Foreign National (other than a citizen of Pakistan or Bangladesh) or an entity incorporated outside India (other than entity incorporated in Pakistan or Bangladesh) can invest in india either of two following ways
Investment by way of Equity (shares)
According to Consolidates FDI policy issued by Department of Industrial Policy and Promotion Ministry of Commerce and Industry Government of India generally Investment in equity share is allowed under automatic route for all business activity unless specifically mention for Government approval route. Percentage of FDI investment in different business sector has been specifically mentioned in FDI policy issued by RBI.
Investment by way of debt
According to Master Direction issued by RBI regarding Issue of External Commercial borrowing if a foreign company want to invest in India by way of debt then such covered under framework of External Commercial Borrowings. ECB Framework enables permitted resident entities to borrow from recognized non-resident entities in the following forms:
- Loans including bank loans
- Securitized instruments (e.g. floating rate notes and fixed rate bonds, non-convertible, optionally convertible or partially convertible preference shares / debentures);
- Buyers’ credit;
- Suppliers’ credit;
- Foreign Currency Convertible Bonds (FCCBs);
- Financial Lease; and
- Foreign Currency Exchangeable Bonds (FCEBs)
Further every company is required to appoint at least one person as director who is resident in India. Resident means a person who has stayed in India for not less than 182 days in a calendar year.
Procedure for forming a foreign subsidiary in India
Step 1: Making DSC of Director
The Information Technology Act, 2000 provides for use of Digital Signatures on the documents submitted in electronic form to any authority to ensure the security and authenticity of the documents filed electronically. Hence all filings done formation of company are required to be filed by using DSC (Digital Signatures certificate)
Step 2: Applying DIN (Director Identification Number) of proposed Director to be appointed
All proposed director need to obtain DIN before being appointed as director of company. DIN shall be applied electronically by filling E form DIR-3 to ROC. If a director already has a DIN then he is not required to take a new DIN.
Step 3: Name approval
A foreign company can choose maximum up to 6 names for incorporating new company. Any promoter/ proposed director of company can apply for name approval by filling E form INC-1 to ROC. ROC shall issue name approval letter if it does not have any objection. Such name approval granted shall have a validity of 60 days hence incorporation form i.e. Spice Form 32 need to be filled within 60 days of grant of name approval.
Step 4: Preparing and signing of documents for Incorporation of company
After name is approved MOA, AOA and other documents of incorporation is prepared such documents need to be signed by director and shareholders of the company and same need to be notarized and apostilled.
Step 5: Filling Spice form 32 for incorporation of company
Ministry of Corporate Affairs has introduced new Spice form 32 for incorporation of company which has clubbed following services in one: –
- Incorporation of New Company
- Allotment of PAN
- Allotment of TAN
Once Spice form 32 is filled ROC scrutinizes same and if there is no objection ROC issues certificate of incorporation
Step 6: Getting COI (Certificate of Incorporation of company), PAN and TAN of company
ROC issues certificate of incorporation if it has no objection in Spice form 32 filled. Further Ministry of corporate Affairs has also now facilized issuing of PAN and TAN along with COI.
Requirements for Foreign Subsidiary Registration:
- Minimum two shareholders
- Minimum two directors
- One resident director
- All directors should have director identification number(DIN)
- Any of the one director should have digital signature certification (DSC)
- Registered office address