A foreign subsidiary company is a partially or wholly-owned company which is a part of a larger corporation. The larger corporation must be headquartered in another country. The foreign subsidiary company works according to the laws of the country in which they are located.
The Parent company may be the majority shareholder of the subsidiary company or have a greater representation on its board of directors.
Steps to be followed after incorporation of the company
- Opening a bank account to receive subscription money
- The receipt of subscription should be obtained from the foreign subscriber
- Declaration of commencement of business – filing of e-form 20A
- As per FDI guidelines, collect the FIRC certificate from the bank
- Issue of share certificate
- Allotment of shares needs to be done within 2 months from the date of incorporation of the subsidiary company to the subscribers.
- As per FDI guidelines, filing of FC GPR with the RBI needs to be done within 30 days from the date of allotment of shares to subscribers/foreign holding company.
Foreign Investments in Indian Companies are regulated by FEMA Guidelines and the Reserve Bank of India. RBI guidelines along with compliances under Companies Act 2013 need to be followed by the holding company whenever it invests funds in the share capital of the Indian subsidiary.
RBI Compliances:
While raising funds from a foreign investor, a two-stage reporting procedure is to be followed:
On receipt of funds: The Company has to provide details in an “Advance Reporting Form” to the RBI within 30 days of receiving funds from the foreign investor(s).
Shares need to be issued by the company within 180 days from the date of receiving funds.
On allotment of shares: The Company has to report in the specified form (FC-GPR) to the RBI, within 30 days from the date of issue of shares along with the following:
– A Certificate from the Company Secretary that states the company has complied with the procedure for issue of shares as laid down under the Foreign Direct Investment (FDI) Scheme.
– A certificate from a Chartered Accountant that states the conclusion for arriving at the price of the shares issued to the foreign investors.
The annual return on Foreign Liabilities and Assets is required to be submitted with a report of all the investments received during the year.
Fund transfers
Anything related to the transfer of funds between the foreign company in India and any other related party of the foreign company outside India including its holding, subsidiary and associate company, include-
- Date of transfer
- Amount of fund transferred or received
- Mode of receipt or transfer of fund
- Purpose of such receipt or transfer
- Approval of Reserve Bank of India or any other authority
All the above-mentioned documents need to be submitted to the Registrar of Companies within a period of six months of the close of the financial year of the foreign company to which the documents relate.
Under special conditions for any special reason with an application made in writing by the foreign company concerned, the Registrar of Companies can extend the said period by a period not exceeding three months.
