This article is written by Anith Johnson, pursuing a Diploma in Companies Act, Corporate Governance and SEBI Regulations from LawSikho.com. Here he discusses “Key Steps involved in the Incorporation of a Foreign Subsidiary”.

Introduction

Section 2(42) of the Companies Act, 2013 defines a foreign company as a body corporate which is incorporated outside which has a place of business in India whether by itself or through an agent, physically or through electronic mode and conducts business in any other manner. A foreign company in which not less than fifty-one percent of the paid-up share capital, whether equity or preference is held by a company which is incorporated in India then it is a subsidiary of the Indian company. This article explains the procedure for incorporation of a foreign subsidiary.

Section 2(87) of the Companies Act, 2013 defines the subsidiary company as a company in which the holding company controls the composition of the Board of directors or controls more than one-half of the share capital either at its own or together with one or more subsidiaries. A wholly-owned subsidiary basically refers to a company in which 100 % of shares are held by the parent company. 

To ease the process of incorporation of companies the Ministry of Corporate Affairs (MCA) introduced SPICe+ FORM (Simplified Proforma for Incorporating Company electronically plus) and notified the same on 18th February 2020. SPICe + offers more than 10 services by 3 central government ministries and one state government (Maharashtra). SPICE + form has replaced the existing SPICe form and it has made the incorporation of companies significantly easier. 

The SPICe+ form is divided into two parts:

• Part A- Reservation of name for new companies.
• Part B- All the other services which are required for incorporation of the company.

• Registration of the company;
• Allotment of Director Identification Number (DIN);
• Issuing of PAN Card;
• Issuance of TAN;
• Issuance of EPFO registration;
• Issuance of ESIC registration;
• Opening of Bank account for the Company; and
• Profession Tax registration (only for Maharashtra).

Process of Incorporation

Section 7 of Companies Act, 2013 and Companies (Incorporation) Rules, 2014 provides for the guidelines which have to be followed for the incorporation of a company. Rule 38 of Companies (Incorporation) Rules, 2014 talks about SPICe+ form and the procedure to be followed for the incorporation of a company.

Obtaining Digital Signature Certificate (DSC)

Digital Signature Certificate is necessary for the person who wishes to be the Director of a company. DSC is a digital key which is issued by the Certifying Authority. The Ministry of corporate affairs has made it compulsory for filing of reports, applications using DSC only.

DSC can be obtained in two ways either through the traditional method or biometric method. In the traditional method, the applicant has to courier all the relevant documents duly notarized along with the prescribed fee to the Certifying Authority. The certifying authority will provide DSC to the proposed applicant upon satisfaction of the provided documents. In Biometric method, the proposed application will personally reach the office of the Certifying Authority with all the relevant documents duly notarized along with organization form and shall submit the same to the company along with the prescribed fee.

Documents required for DSC

1. Proof of Identity– PAN Card/ Passport/ Driving license or any other Government ID bearing the signature if the applicant is an Indian national. Attested copy of the Passport/VISA/ Resident Permit for foreign nationals.
2. Address Proof– Copy of Aadhar Card/Voter ID Card/Driving license or any other utility bill which is not older than 3 months if the applicant is an Indian national. Attested copy of the Passport/VISA/ Resident Permit for foreign nationals.
3. Attested Copy– Self Attested copy of the ID Card is sufficient if the applicant is an Indian national. If it is a foreign national then it should be attested by the embassy of the foreign or it should be apostatized by Native Country.
4. Passport Size photograph

Approval of name

The next step towards incorporation of the company is the approval of the name by the Ministry of Corporate Affairs. Earlier approval of names was being filed on the R.U.N (Reserve Unique Name) form in the MCA website. Now the RUN form is used to change the name of an existing company only. Part A of the SPICe+ form can be applied for Reservation of name for a new company separately and it can be applied simultaneously also. 

The applicant who desires to incorporate a foreign firm is required to mention the following information in the SPICe+ form-

1. Type of company
2. Class of company 
3. Category of company
4. Industrial activity of the Company
5. Description of Industrial activity
6. Proposed name
7. Choose file

Pursuant to Section 4(2) and (3) of the Companies Act, 2013 and read with rule 8 of the Companies Incorporation Rules, the original name of the holding company may be used with the addition of word India or name of any Indian state or city. If the proposed name includes the name of a foreign country then the same shall be allowed after the proof of business relations such as Memorandum of Understanding. If the foreign company has a trademark for the same then it can use the Trademark for the same. The applicant has to make sure that there is no trademark violation. The applicant has two options either to submit a name application and make a payment of INR 1000/- or can proceed with the incorporation of the company. 

Incorporation of Foreign Subsidiary

Part B of the SPICe+ form deals with the incorporation of the company. On choosing to proceed after completion of Part A then only incorporation proceedings will start. SPICe+ form contains various columns which are required to be filled properly for the incorporation of the company. 

• Registration of Company

The applicant has to fill details and attach relevant documents of the company in an electronic form and apply the same through SPICE+ forms only. It includes various details such as the address of the registered office, the capital structure of the company.

• Allotment of Director Identification Number (DIN)

DIN is a unique 8 digit identification number allotted to an individual who desires to become a director of a company. Any person who intends to become the Director of a new company is required to apply and fill SPICe+ form. Only the person who has DIN can act as a director of the company. 

• Issuing of PAN Card

Permanent Account Number (PAN) is a unique ten-digit number which is issued by the Department of Income Tax. It is mandatory to apply for a PAN Card at the time of incorporation of the Company.

• Issuance of TAN

Tax Deduction and Collection Account Number (TAN) is a unique ten-digit number which is issued by the Department of Income Tax. 

Documents required for SPICe+

• Memorandum of Association which is duly apostilled or notarized in a foreign nation;
• Articles of Association  which is duly apostilled or notarized in a foreign nation;
• Declaration by the first Director(s) and Subscriber(s) which duly apostilled or notarized in a foreign nation;
• Digital Signature with only one subscriber;
• NOC from the owner of the company;
• DIR-2 declaration from directors along with proof of Identity;
• Proof of office address;
• Copy of utility bills which should not be older than two months;
• A resolution passed by the promoter company;
• Copy of body resolution of incorporation of foreign body and resolution of passed by the foreign company;
• Proof of identity and residential address of subscribers;
• Proof of identity and residential address of nominees.

 Agile-Pro

Pursuant to section 38A of Companies (Incorporation) Rules, AGILE-PRO is required to be filed for application of registration of Goods and Services (GSTIN), Employee State Insurance Corporation (ESIC) registration, Employees Provident Fund Organisation (EPFO), Profession Tax Registration and Opening of Bank Account. It is mandatory to fill the AGILE-Pro form along with SPICe+ Form for the incorporation of a new company.

• Issuance of EPFO registration

Employees Provident Fund Registration (EPFO) is compulsory for every organization which has more than 20 employees. EPF is a benefit which is provided to the employee by the organization at the time of retirement. EPF is governed by the Employees Provident Funds & Miscellaneous Provisions Act, 1952. SPICe+ form has made it mandatory for EPFO registration along with the incorporation of the company. 

• Issuance of ESIC registration

Employee State Insurance Corporation (ESIC) is an autonomous body under the Ministry of Labour and Employment. This scheme provides medical and monetary benefit to employees by the employer. ESI is governed by the Employees’ State Insurance Act,1948. SPICe+ form has made it mandatory for the applicant to register at ESIC at the time of incorporation itself. 

• Opening of Bank account for the Company

Companies are required to create a bank account at the time of incorporation itself. Only ICICI and Punjab National Bank have been integrated with AGILE-Pro.

• Profession Tax registration (only for Maharashtra) 

Professional tax registry is compulsory for the companies which are registered in the state of Maharashtra.

Documents required for Agile-Pro

• Proof of Principal place of business.
• Proof of appointment of authorized signatory for GSTIN.
• Proof of identity of authorized signatory for opening a bank account.
• Proof of address of authorized signatory for opening a bank account.
• Specimen signature of authorized signatory of EPFO.

Fill Details in INC-9

INC-9 is a declaration which is given by the director which is filed along with SPICe+ Form at the time of incorporation. An affidavit of the director is also filed along with INC-9.

Uploading Forms and Certificate of Incorporation

All the forms should be downloaded in PDF Format and DSC should be affixed. Once DSC is affixed then all the forms should be uploaded on the MCA website. Once the forms are uploaded it will be scrutinized by MCA. After scrutiny certificate of incorporation will be given. The certificate of Incorporation shall be issued by the Registrar in Form INC 11. 

Conclusion

India is considered as a lucrative market for doing business and many foreign companies want to establish themselves in India as it has a promising future. India offers a favourable business environment at the same time it is also important to understand the regulatory and procedural framework before incorporating a foreign subsidiary in India. Ease of doing business initiative has significantly eased the process of incorporation of a foreign company. A foreign company can set up its wholly-owned subsidiary in India if it follows the procedure mentioned in the article.

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