Incorporation of A Subsidiary Company in India

1. Introduction

An Indian or Foreign business entity generally incorporates a ‘subsidiary company’ or a ‘wholly owned subsidiary company’ in India to expand its existing business. The difference between the two is that the ‘subsidiary company’ allows parent company to exercise more than fifty percent of the voting power of such subsidiary company while in case of wholly owned subsidiary, 100% of the control over the subsidiary company is exercised by the parent company.
 Before taking any decision to incorporate the subsidiary company in India, it is important to understand what is subsidiary company, what is the process of incorporation, what are key documents required and what are key compliances applicable to a subsidiary company.

2. Meaning of subsidiary Company

As per section 2(87) of the Companies Act, 2013, "subsidiary company" or "subsidiary” in relation to any other company (that is to say the holding company), means a company in which the holding company—

1. controls the composition of the Board of Directors; or
2. exercises or controls more than one-half of the [total voting power] either at its own or together with one or more of its subsidiary companies:

 
The process for incorporation of a subsidiary company is similar to any other type of company in India except for some additional documents required to be submitted at the time of incorporation as an attachment along with incorporation form.

3. Key Considerations while deciding formation of subsidiary company in India

1. Business activities: A subsidiary is more suitable business form if the parent company wish to have full fledge business activities in India. If the parent company is outside India and is intended to perform limited activities such as representative office, sourcing, technical and/or marketing support, import and export, etc then they may consider less complex business structures like Branch Office (BO) or Liaison Office (LO) or Project Office (PO).

 

2. Investment objectives: Any company opting to diversify/ expand its business can opt for establishing a wholly owned subsidiary or a subsidiary company. However while choosing subsidiary structure parent company should consider investment objectives and possible transactions in near future including whether there are some additional investors to the business venture, any possible joint venture partner to invest in company,  any possible merger and acquisition or hiving off any part of business in near future etc

 

3. Risk reduction: The parent-subsidiary structure help in mitigating regulatory risks because a subsidiary is a separate legal entity and independently responsible for various legal matters.

 

4. Operational efficiency: parent company should also consider possible operational efficiency by splitting a large company into smaller, more easily manageable companies.

 

5. Control and ownership: Proposed ownership and control aspects need to considered, as it will help in deciding whether to form a subsidiary company, wholly owned subsidiary company or a joint venture company or any other possible form of business.

 

6. Applicable regulatory approvals and compliances: Parent company should also consider what are the key regulatory approvals and compliances in India pre and post incorporation of a subsidiary company. 
7. Taxation: Taxation is another key factor which need to be considered while forming a subsidiary company.

4. Steps for Incorporation of a subsidiary company

a. Name Reservation:

 The first step in Incorporation of a subsidiary company is reservation of name by filing SPICe+ Part A. The company is required to provide two names in order of preference. The names shall be supported with a rationale and objectives of the company to be pursued upon incorporation.
 In case, the name of subsidiary company include the name of parent company or is similar to the name of parent company, a NOC (no-objection certificate) for use of name by the subsidiary company shall also be submitted.

 b. Obtaining Digital Signature Certificate (DSC) and Director Identification Number (DIN)

 DSC is required for all Directors and subscribers (except when the total number of directors and subscribers exceed 20 or when any of the director/ subscriber is a person who does not have a valid DIN/ PAN). Documents required for DSC:

•  Foreign Individual

Government issued Address Proof -- Notarized and Apostilled *
Government issued ID Proof – Notarized and Apostilled
Email and Phone No. of the applicant
Passport size Photograph of the applicant
* For foreign national, the identity and address proof should be in English, else an English translation of the proofs duly notarised and apostilled should be submitted for DSC preparation

• Resident Individual

Aadhar Card as Address Proof- Self attested
PAN Card as ID Proof - Self attested
Email and Phone No. of the applicant
Passport size Photograph of the applicant

• Where applicant is Non-Individual (i.e. Body Corporate)

Name of the Company- self attested by any of the Director
PAN of the Company - self attested by any of the Director
GST certificate of the Company - self attested by any of the Director
Complete address of the Company
Mobile No. of the Authorized Representative
E-mail ID of the Authorized Representative
Passport size photograph of the Authorized Representative
Self-attested copy of PAN of Authorized Representative
Self-attested copy of Address Proof of the Authorized Representative

 Obtaining Director Identification Number (DIN)
 
As per Act, it is mandatory for every Director to obtain DIN before being appointed as Director. The SPICE + form provides an option to apply for maximum 3 DIN. However, in case the number of directors of the subsidiary company not having a valid DIN is/are more than three, a separate application in Form DIR-3 is required to be filed with the Registrar for obtaining DIN. This process can take place either before applying for the incorporation or after the company has been incorporated. For making a DIN application with the Registrar, following information shall be required:

1. Name,
2. Father’s Name
3. Gender
4. DOB
5. Present Address and Permanent address
6. Area of Occupation (Govt. /Teaching/ others)
7. Educational Qualification (X/SSLC/Juniour /Equivalent OR XII/SSC/High/Equivalent OR Graduation/bachelor/Equivalent OR Post Graduate/master/Equivalent OR Professional OR Executive OR Doctorate OR Diploma OR Other)
8. ID Proof (DL/Voter ID/ Passport)- self attested in case of resident Director and duly notarized and apostilled in case of foreign Director
9. Address Proof (Electricity bill/ bank statement/mobile bill/Telephone bill)- self attested in case of resident Director and duly notarized and apostilled in case of foreign Director

 

c. SPICE+ PART B, SPICE + MOA, SPICE+ AOA and AGILE PRO 
Once the name is reserved by the registrar, the applicant needs to file SPICE + Part B along with AGILE PRO within twenty (20) days of such approval. The following information about Company, its directors, subscribers, share capital and other related details is required for submission of final incorporation forms:
 
Information/ documents related to Company

• Correspondence and Registered Address of the company
• Capital Structure of the company (Authorized and paid-up share capital of the company)
• Proof of registered office address
• Utility bill of registered office (not older than two months)
• A No- objection certificate from the owner of the premises allowing the company to use it as its registered office
• Objects which the company wants to pursue after its incorporation
• Copy of certificate of incorporation of the parent company and the resolution passed by such company for incorporation of the subsidiary company

Information/ documents related to Directors

If director has DIN, following details shall be submitted:

• DIN of the Director
• Category (Promoter/Professional/Independent/Nominee)
• Designation (Director/MD/WTD)
• Whether (Chairman/Executive Directors/Non-Executive)
• Shares Subscribed
• Details of interests in other entities in Form MBP-1
• Consent to act as Director in Form DIR-2
• Declaration in Form INC-9 (conditional)

If Director does not have a valid DIN:

• Name
• Fathers name
• Gender
• Present Address/Permanent Address
• Area of Occupation (Govt. / Teaching/ Others)
• Education Qualification
• Place of Birth
• Designation (Director/MD/WTD/Nominee)
• Category (Promoter/Professional/ Independent Director/Nominee)
• Non-executive/Executive/Chairman
• Duration of stay at present address (if duration is less than one year, provide previous residence)
• Shares Subscribed
• ID Proof- DL/Voter ID/Passport
• Address Proof- Electricity Bill/bank Statement/mobile bill/telephone bill.
• Declaration in Form INC-9 (conditional)

Information/ documents related to Subscribers

• Name
• Fathers Name
• Gender
• Present Address/Permanent Address
• Duration of stay at present address (if less than one year, then provide previous address)
• Area of Occupation (Govt. / Teaching/ Others)
• Education Qualification
• ID Proof: (DL/Voter ID/Passport)
• Address Proof: Electricity Bill/ Bank statement/ Mobile Bill/ Telephone Bill
• Number of shares subscribed
• Declaration in Form INC-9 (conditional)

AGILE PRO
The incorporation form is accompanied with linked form AGILE PRO that provides GST, EPF and ESI registration along with opening of bank account. For Opening Bank Account and for EPF and ESI registration, the Company is required to authorise a Director to act as an authorised signatory. Documents to be submitted with AGILE PRO are:

• Proof of place of business
• Proof of appointment of authorized signatory
• Proof of identity for opening bank account
• Proof of address for authorised signatory for opening bank account
• Specimen signature