At the outset, please note one very important thing. Any investment by a foreign company in an Indian subsidiary is termed as Foreign Direct Investment (FDI) and shall be subject to FDI rules and regulations in India.
The Procedure can be briefly outlined as follows:
A. Pre -incorporation
- First ascertain if the proposed FDI falls under the automatic route of investment or the approval route. This can be done by studying the FDI rules (presently codified under the Non-Debt Instrument Rules.
- If the proposed FDI falls under the liberalised automatic route, then there is much lesser compliance and the path to incorporation is easier. Remittance can be directly made to the indian subsidiary after incorporation and there is only post-remittance reporting to the RBI.
- If the proposed FDI falls under the approval route (which will happen only in few cases), then the route is a bit longer. You have to make an application with the Government and only after the approval is received (there may or may not be some conditions attached), can you incorporate the Company. Please note that the post-remittance reporting to the RBI still is to be complied.
B. Incorporation process
- The name has to be applied for reservation. Please note the name is valid only for 20 days.
- Its advisable for all Foreign Directors and foreign shareholders to notarise and apostille their passports and address proofs (like utility bills or bank statements) unless they propose to travel to India on a business visa.
- Notarised and Apostilled Board Resolutions may be required for name approval (if the name of the subsidiary is after the name of the parent Company). Similar Board Resolutions shall be required for investment of capital and nominating a person to sign the documents on behalf of the Foreign Company.
- Memorandum and Articles of Association, if signed by the subscribers in a foreign country shall be notarised and apostilled in the home country.
- Final incorporation forms (presently Spice plus form) needs to be filed.
- There is an option to combine Steps 1 (name approval) and Step 5 (Incorporation) in one step. This option may be taken on case to case basis.
C. Post incorporation process
- The first process is to open a bank account and deposit the initial capital. Once the initial capital has been deposited, the post-facto reporting (discussed above in the pre-incorporation section) needs to be done via your Authorised Dealer (AD) bank.
- If the registered office address has not been provided during the incorporation process, then the same needs to be done within 30 days of incorporation
- A statutory auditor needs to be appointed within 30 days of incorporation.
- Other required registrations may be complied with.
- If the foreign Director does not intend to visit India for a few more months, then its suggested to appoint an alternate Director (who shall act as a local proxy for the Foreign Director) to conduct certain important Board matters.
Conclusion: India has become an exciting place to do business -both manufacturing and service sector. There are a lot of Companies starting to diversify their supply chains from China to India. Also with the International Finance Services Centre (IFSC) gradually developing in India and the service sector innovation taking place in India, Foreign companies can look forward to set up subsidiaries in India to do business in India.