Set up a joint venture with an Indian business house/company in India
Subsidiary of Foreign Company: An Overview
Foreign companies may set up a joint venture in financial collaboration with an Indian business house/company in India. For this purpose, an Indian company with limited liability is formed in India. The companies once incorporated are treated like other Indian companies and enjoy all the benefits of being an Indian company (Including tax rate applicable to Indian Companies).
Depending upon the business sector, the investments on repatriation basis are allowed under automatic route or through prior approval of Government body (FIPB). A foreign company can commence operations in India through incorporation of a company under the provisions of the Indian Companies Act, 1956. Foreign equity in such Indian companies can be up to 100 per cent depending on the business of the foreign investor, prevailing investment policies of the Government and receipt of requisite approvals.
The most important decision is choosing an appropriate local partner. A local partner can play a significant role in overcoming various legal complexities. Business synergies, which are complimentary for the venture, are also required. Prior to commencing negotiation, confidentiality/ non-disclosure agreements may be entered into between the parties, for the protection of strategic business information. Such agreements are enforceable in India.
Deciding the location
The next step is to identify a location for the proposed project. Choice of location depends upon the type of activity to be undertaken. If the activity relates to consumer goods sector, a variety of locations will be available due to the fact that a number of Indian partners can be easily found for such activities. However, in case of specialized industries, there may be limitations on the choice of location as the number of suitable partners for such activity is limited. Other important factors to be considered for this purpose are availability of infrastructural services and financial incentives such as preferential tax treatment.
Joint Venture Agreement
Another step taken at the initial stages of negotiation is to sign a MoU, which lays down the basic parameters of the project and contains the intention of the parties to enter into the joint venture, but is not legally binding. In order to give such agreement a binding effect, stamp duty has to be paid thereon. However, this document only binds the parties and not the company, except when its terms are incorporated in the Articles of the company. This MoU is then used as a basis for the Joint Venture Agreement. The joint venture agreement/shareholders agreement along with the Articles of Association constitutes the bye-laws of the Joint Venture Company. This document defines the mutual rights of the parties and also prescribes guidelines for efficient functioning of the company.
Factors to Be Considered While Forming A Joint Venture in India
In sectors where 100 percent Foreign Direct Investment (FDI) is not permitted and wholly owned subsidiaries cannot be set up, a foreign investor may enter the Indian market through joint ventures. Forming a joint venture encompasses a number of stages and a number of factors. Mentioned below are some of the essential steps to be taken by a foreign party to a Joint Venture:
Subsidiary of Foreign Company: Incorporation Process
Identify a minimum of 2 promoters and 2 Directors
For registering a private company, a minimum of 2 shareholders and 2 directors are required. Shareholders could be individuals or body corporate registered in any country under the respective laws prevalent in that country. A director need not be a shareholder of the company and all the shareholders need not necessarily be the directors as well. Shareholders/Members are the persons holding shares in a company.
Directors of company are responsible for the management of the company affairs and all the legal compliance under various laws. Directors are normally appointed by shareholders. As per Indian company laws, only an individual can be appointed as a director of a company.
Obtain a Director Identification Number (DIN) for all proposed directors.
The proposed director must have a DIN allotted by the Ministry of Corporate Affairs, Government of India. DIN can be obtained by filing an online application with a copy of ID and address proofs.
Obtain a Digital Signature Certificate (DSC) for one of the promoters and directors.
During the registration process, all the documents are submitted to the ROC online through www.mca.gov.in. and these forms need to be authenticated by signing it using DSC issued by the Certifying Authority in India. One of the promoters and directors should have a DSC to authenticate the documents that are to be filed.
Identify the location and authorized capital of the company.
It is important to have an address for the registered office of the company. The address need not be a commercial location for registering a company. ROC will send all the correspondence of a company to the registered office address. The jurisdiction of ROC will depend on the location of the registered office.
A private limited company should have a minimum authorized capital of INR 1,00,000. Authorized capital can be any amount above the minimum limit. The company registration fee varies depending on the authorized capital of the company to be registered.
Company Name Application.
Before proceeding with the incorporation process, an application is to be filed for getting the company name approved from the ROC. It is preferable to submit the application with multiple names in the order of preference. Company name application must be in line with Company Name Guidelines.
Company name application is filed in Form 1A to the Ministry of Corporate Affairs, Government of India, to check the availability of the proposed name for registration of the new company.
If the foreign entity (e.g. XYZ Limited) wants to retain its name in India, it is advisable to apply a name such as 'XYZ India Limited'. A board resolution for the authority for usage of the name and trademark, if any, from the parent company is required to be submitted to the ROC with the name application.
Once approved, the name will be reserved for 60 days. Company registration documents have to be executed and filed within this time line.
After the company name is approved, the company incorporation documents such as Memorandum of Association (MoA) and Articles of Association (AoA) have to be executed by the promoters in the prescribed format.
MoA and AoA have to be executed by its subscribers with details such as name, father's name, residential address, occupation and the number of shares they agree to take in their own handwriting. They will then have to sign the document and the document has to be witnessed by a person who knows the subscribers.
In case of the parent company being the promoter, MoA and AoA have to be executed by its representative who has the authorization by way of resolution for execution. Documents executed outside India are required to be notarized, apostatized or attested by the Indian Embassy in their respective countries.
In case the promoters are visiting India and executing the documents in India, these documents can be notarized by a public notary in India. In such a case, there is no need for notarization, apostatization or attestation from the Indian Embassy.
Submission company registration documents ROC
Once the MoA and AoA are executed, the same has to be submitted to the ROC of the respective state for registration of the company. The originally executed MoA and AoA are not required to be filed with the ROC offices. The same has to be preserved by the promoters for future reference.
Along with incorporation documents, details of the directors and the registered office are also required to be filed with the ROC.
Company registration and Certificate of Incorporation
The ROC will register the company after due verification of MoA, AoA and other details and will issue the Certificate of Incorporation (COI). The ROC will also allocate a Corporate Identification Number (CIN), which is the number of the company so registered.
The COI is now issued by the ROC in the digital form with the DSC; no physical certificate will be issued by the office of the ROC.
Subsidiary of Foreign Company: FAQ
Whether approval of Government of India is required before making Foreign Investment in India?
A foreign national can incorporate a company in India and subscribe the equity shares of that company but under the foreign Investment Policy of India, such investments are categorized under two routes:
Under the Automatic Route, the Government of India has prescribed the limit of foreign investment in various sectors and if you are incorporating a company to operate in that sector and within the limits of foreign investment allowed in that sector, you can establish your company in India.
In case their investment falls under the automatic route, a company can be incorporated without any permission.
If you do not fall under the above route or you are making investment in sector more that limit of foreign investment available in that sector, than you will be required to take the permission of Foreign Investment Promotion Board for incorporating a company in India.
In case their investment falls under approval route, they have to take the permission of relevant regulatory authority before incorporating a company.
What are the basic tax numbers that are generally required to for every business?
In India, basically there are two types of tax numbers, which are outlined below:
General Tax Numbers: Tax Numbers like PAN & TAN are generally required to be obtained by all types of business.
Specific Registration: These registrations are required based on the nature of business carried by the organization for in case of business of trading, Value Added Tax number will be required subject to fulfillment of certain conditions.