Understanding Foreign Company under the Companies Act, 2013

A "foreign company" as defined under Section 2(42) of the Companies Act, 2013, refers to any company or body corporate that is incorporated outside India but has a place of business in India. This place of business can be established either directly or through an agent, and can operate physically or via electronic means. Furthermore, any business activity conducted in India by such a company, irrespective of the manner, qualifies it as a foreign company.

Key Requirements for Foreign Companies in India

Resident Director Requirement

According to Section 149(4) of the Companies Act, 2013, every company must have at least one director who resides in India. This resident director is responsible for managing the company's operations within India. This requirement ensures that foreign companies have a local representative to handle regulatory and compliance issues.

Application Filing by Resident Director

All applications and official documentation for the incorporation and operation of a foreign company in India must be filed by the resident director. This includes submissions to the Ministry of Corporate Affairs (MCA).

Documentation and Compliance

Physical Submission of Documents

Currently, there is no provision for an electronic Memorandum of Association (MoA) and Articles of Association (AoA). Therefore, physical forms must be attached to the INC-32 form when incorporating a wholly-owned subsidiary or any other type of company in India. Additionally, documents pertaining to foreign directors must be notarized and apostilled by the respective embassy. For instance, documents for American directors must be apostilled by the US embassy

Director Identification Number (DIN)

Foreign directors must obtain an Indian Director Identification Number (DIN). Without a DIN, a foreign national cannot serve as a director of an Indian company. The process includes submission of apostilled documents and verification by the MCA, following which the DIN is allotted.

Digital Signature Certificate (DSC)

A Digital Signature Certificate (DSC) is also mandatory for foreign directors. The process involves submitting notarized and apostilled documents, undergoing a video verification (a 20-second video stating the director's name, address, and country of origin), and mobile verification using a local number.

Benefits and Opportunities for Foreign Companies in India

India presents a lucrative opportunity for foreign investors due to its commercial advantages:

1. Cost-Effective Resources:

India offers cheap labour and affordable land, making it an attractive destination for business operations.

2. Ease of Doing Business:

Recent reforms have simplified business procedures, making it easier for foreign companies to establish and operate in India.

3. Government Incentives:

There are various exemptions and benefits for foreign investments. The Foreign Exchange Management Act (FEMA) and the Reserve Bank of India (RBI) have liberalized the investment process, facilitating easier issuance and allotment of shares, and allowing companies to list on Indian stock exchanges.

Control and Management of Indian Subsidiaries

Foreign directors can maintain control over their Indian subsidiaries while complying with local regulations:

Majority Shareholding:

The parent company or foreign directors can hold the majority of shares, ensuring control over the subsidiary.

Role of Resident Director:

The resident director acts as a local guardian, managing day-to-day operations without interfering in the overall control exercised by the parent company.

Ways for a Foreign Company to Operate in India

A foreign company looking to enter and conduct business in India can do so through several avenues:

As an Indian Company

1. Wholly Owned Subsidiary

A foreign company can incorporate an Indian Limited company with 100% Foreign Direct Investment (FDI) through the automatic route. This means the foreign company holds all the shares of the Indian company.

2. Joint Venture

A foreign company can partner with a local Indian company to form a joint venture. This involves signing a Memorandum of Understanding (MoU) or a Letter of Intent, outlining the terms of the partnership, which must comply with both regional and international laws.

3. Subsidiary Company

A foreign company can hold up to 49.99% of the shares in an Indian company, establishing a subsidiary.

As a Foreign Company

A foreign company can register under the Companies Act, 2013, to start business in India through the following methods:

1. Branch Office

A foreign company can establish a branch office in India if it is a large enterprise and can provide proof of profitability. The branch office conducts the same business activities as the parent company.

2. Liaison Office:

A liaison office can be set up for liaison activities in India. All expenses of the liaison office must be covered through remittances from the parent company.

3. Project Office:

This type of office is established to execute specific projects awarded to a foreign company by an Indian company. It may require approval from the Reserve Bank of India (RBI).

Starting a Private Limited Company

Setting up a private limited company is one of the quickest and easiest ways to establish a business in India. Foreign Direct Investment (FDI) of up to 100% is permitted under the FDI policy for both public limited and private limited companies.

By choosing any of these methods, a foreign company can effectively enter and operate in the Indian market.

Conclusion:

Establishing a foreign company in India involves navigating regulatory requirements but offers substantial opportunities for growth and expansion. By appointing a resident director and ensuring compliance with documentation and procedural requirements, foreign companies can successfully manage and control their Indian subsidiaries.

For further assistance and professional guidance on incorporating a foreign subsidiary in India, you can contact us directly. Our team is equipped to help you through every step of the process, ensuring a smooth and efficient setup of your business operations in India.