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Population
1,428,627,663
Languages
1.
Hindi
2.
English
Country Capital
New Delhi
Currency
Indian rupee (₹) (INR)
Setting up a subsidiary is a complicated task. Significant time and resources are necessary to establish and maintain a company in India. The rules and regulations vary by state and region, adding another layer of complexity. Instead of dealing with the confusion alone, Soarcio is here to help
Establish a Subsidiary in India: A Step-by-Step Guide
Expanding your business into India by setting up a subsidiary is a strategic move that offers access to one of the world’s fastest-growing markets. However, navigating the process of establishing a subsidiary can be complex due to India’s unique legal, financial, and regulatory landscape. This guide outlines the process of setting up a subsidiary in India, highlighting key steps, legal requirements, and potential challenges.
What is a Subsidiary in India?
A subsidiary in India is a company that is owned and controlled by a foreign parent company. The subsidiary operates as an independent legal entity, with its own management and operations, but the parent company retains significant control over its activities. The subsidiary can be structured as a Private Limited Company, Public Limited Company, or Limited Liability Partnership (LLP), depending on the business needs and strategic objectives.Establish a Subsidiary in India
- Choose the Appropriate Business Structure
- Private Limited Company: Ideal for small to medium-sized enterprises, offering limited liability to shareholders and a simpler regulatory framework.
- Public Limited Company: Suitable for larger companies planning to raise capital through public offerings.
- Limited Liability Partnership (LLP): A flexible structure that combines the benefits of limited liability with the operational flexibility of a partnership.
- Obtain Name Approval
- The first step in establishing a subsidiary is to choose a unique company name and obtain approval from the Ministry of Corporate Affairs (MCA). The name should comply with the naming guidelines set by the MCA.
- Draft and File Incorporation Documents
- Prepare the Memorandum of Association (MOA) and Articles of Association (AOA), which define the company’s purpose, scope of activities, and governance structure. These documents must be filed with the MCA, along with the incorporation application.
- Notarization and Apostille/Legalization: Notarization and apostille/legalization of documents are mandatory in the case of international subscribers or directors. This ensures the legal validity of the documents in India.
- Complete Director and Shareholder Requirements
- Appoint at least two directors, one of whom must be an Indian resident. Ensure that all directors have a valid Director Identification Number (DIN) and Digital Signature Certificate (DSC). Determine the shareholding structure and issue shares to the parent company or other shareholders.
- Register for Taxation and Compliance
- Permanent Account Number (PAN) and Tax Account Number (TAN): Apply for PAN and TAN for tax compliance.
- Goods and Services Tax (GST) Registration: Register for GST if the subsidiary engages in taxable supply of goods or services.
- Employee-Related Compliance: Register for the Employee Provident Fund (EPF) and Employee State Insurance (ESI) to comply with labor laws.
- Open a Corporate Bank Account
- Once the company is incorporated, open a corporate bank account in India. This account will be used for all financial transactions, including capital infusion, operational expenses, and regulatory payments.
- Meet Ongoing Compliance Obligations
- Annual Filings: Submit annual returns, financial statements, and compliance certificates to the MCA.
- Tax Filings: Ensure timely filing of income tax, GST, and other relevant taxes.
- Statutory Audit: Appoint a statutory auditor to conduct an annual audit of the subsidiary’s financial statements.
Understanding India’s Subsidiary Laws
India’s subsidiary laws can vary significantly depending on the location. Each state in India operates almost like a separate jurisdiction, with distinct cultural practices, languages, and regulatory frameworks. India’s subsidiary laws can differ significantly based on location. Each state operates almost like a separate jurisdiction, with its own cultural practices, languages, and regulatory frameworks. The rules for incorporation also vary depending on the type of subsidiary you intend to establish:- Private Limited Company: Ideal for small or medium-sized enterprises, private limited companies are favored due to their relatively fewer reporting requirements. While India has no minimum capital requirement for private companies, many opt to incorporate with some capital. These companies require at least two members and two directors (with a maximum of 15). Financial statements must be prepared, and a statutory audit must be completed within six months of the fiscal year-end.
- Public Limited Company: Public companies must adhere to Securities and Exchange Board of India (SEBI) regulations. According to India’s subsidiary laws, a minimum paid-up capital is required, along with at least seven subscribers. Public companies also need a minimum of three directors, but no more than 15. The accounting and auditing requirements are similar for both public and private subsidiaries.
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