Establishment & compliance of foreign entity in India

BRIEF INTRODUCTION

• In this article, we are going to elaborate further on the Establishment, Compliance & closing compliances and requirements for Foreign Entity in India.
• Foreign Company in line with the businesses Act 2013 is defined as any company or body corporate incorporated outside India, which features a place of business in India whether by itself or through an agent, physically or by electronic medium; and, conducts any endeavour in India in the other manner.
• However, there’s a small change in the definition of an overseas company for the aim of Merger, i.e., Foreign Company means any company or body corporate incorporated outside India having an area of business in India or not.
• India being the fastest growing economy in the world provides many opportunities to foreign companies to grow and develop their business.

The foreign investments in India are governed by the principles and policies of FDI, FEMA, RBI and firms Act 2013. so as to ascertain its business any foreign entity has the subsequent options:

• Wholly owned company
• Acquisition Of Shares/Stake in An Indian
• Joint Venture with an Indian Company
• Liaison Office
• Project Office
• Branch Office
• Limited Liability Partnerships (LLPs)
• Merger with Indian Company

WHOLLY OWNED SUBSIDIARIES

1. It’s an organization in which a far-off entity makes 100% FDI in India through automatic route.
2. A Wholly Owned company may be formed as a “private limited or public limited Company”.
3. Wholly Owned Subsidiary has comparatively more flexibility in conducting business in India as compared to liaison office or branch office. this can be considered because the easiest and also the preferred route by the foreign entities for establishment of their business in India.
4. It is governed by the businesses Act, 2013. Once a corporation has been duly registered and incorporated as an Indian Company they’re treated as domestic Company and are eligible for all exemptions, deductions benefit as applicable to the other Indian Company

ACQUISITION OF SHARES BY A FOREIGN COMPANY IN AN INDIAN COMPANY

• The industry, in the present case is financial services, which is that the exception to the sectors where the FDI Cap is 100% and therefore the entry route is Automatic.
• In case of such a proposal for acquisition of shares in an existing Indian company in the financial services sector, the applying of the Securities & Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 is attracted and prior approval of the govt. is required.
• The above-mentioned activities have been recognized by the Foreign Investment Promotion Board (FIPB), Ministry of Finance.
• For these acquisitions’ application is made in Form FC-IL; plain paper applications carrying all relevant details are accepted and no fee is payable.
• Indian companies having foreign investment approval through FIPB route don’t require to any extent further clearance from RBI for receiving inward remittance and issue of shares to the foreign investors.
• The businesses are required to notify the concerned regional office of the RBI of receipt of inward remittances within 30 days of such receipt and within 30 days of issue of shares to the foreign investors or NRIs.

Procedure Foreign Company in an Indian Company

The following procedure is to be followed after investment is created with Government approval:

1. On receipt of cash for investment: Within 30 days of receipt of cash from the foreign investor, the Indian company will report back to the Regional Office of RBI under whose jurisdiction its Registered Office is found, a report containing details such as:

• • Particulars of the foreign investors, including their name and address
  • Details related to the receipt of funds and their the same be provided in equivalent to Indian rupees.
  • Particulars of the authorized dealer through whom the funds are channelized, including their name and address.
  • Details in respect of approval obtained from the government, if required.

2. On issue of shares to foreign investor: Within 30 days from the date of issue of shares, a report in Form FC-GPR along with the subsequent documents should be filed with the Regional Office of RBI:

• • Certificate from the corporate Secretary of the corporate accepting investment from persons resident outside India certifying that:
  • All the necessities of the businesses Act, 1956 are complied with;
  • Terms and conditions of the govt approval, if any, are complied with;
  • The company has been authorized for issuance of shares under these Regulations; and
  • The company is in receipt of all the original certificates issued by authorised dealers in India, evidencing receipt of amount of consideration;
  • Certificate from Statutory Auditors or accountant indicating the way of arriving at the worth of the shares issued to the persons resident outside India.

The guidelines in respect of pricing and documentation, in case where SEBI guidelines are attracted, shall be in compliance with those specified by RBI from time to time.

The investee company being in the financial sector, the FDI policy and FEMA regulations in terms of entry route, sectoral caps, conditionalities (such as minimum capitalization, etc.), reporting requirements, documentation etc., are to be complied with.

METHOD OF PAYMENT OF CONSIDERATION

• The sale consideration in respect of the shares purchased by an individual resident outside India shall be remitted to India through normal banking channels, by way of debit to the NRE/FCNR account maintained by the person concerned, with an authorised dealer/bank, or  by debit to non-interest bearing Escrow account (in Indian Rupees) maintained in India with the AD bank in accordance with interchange Management (Deposit) Regulations, 2000.
• The consideration amount may additionally be paid out of the dividend payable by Indian investee company, in which the said non-resident holds control, provided the correct to receive dividend is established and also the dividend amount has been credited to specially designated non-interest bearing rupee account for acquisition of shares on the ground of securities market. in case the client could be a Foreign Institutional Investor (FII), payment should be made by debit to its Special Non-Resident Rupee Account.

VALUATION OF SHARES OF AN EXISTING COMPANY

The valuation of the shares to be transferred, to a non-resident by a resident, shall be determined as under:

• In case of listed shares, at a price which isn’t but the worth at which a preferential allotment of shares would be made under SEBI guidelines.
• If it is the unlisted shares at a price which isn’t but the fair valuation as per any internationally accepted pricing methodology on arm’s length basis to be determined by a SEBI registered Category-I- Merchant Banker/Chartered Accountant.

KINDS OF FOREIGN INVESTMENT

• STOCK/SHARES

Foreign investment through stock is allowed by foreign investors and is treated as foreign direct investment. However, the preferred stock should be fully and mandatorily convertible into equity shares within a specified time to be reckoned as a part of share capital under FDI. Investment in other sorts of preferred stock requires to go with the External Commercial Borrowings (ECB) norms.

• DEBENTURES

Debentures which are fully and mandatorily convertible into equity within a specified time would even be reckoned as a part of share capital under the FDI Policy.

• RIGHTS SHARES

FEMA has no restrictions for investment in Rights shares issued at a reduction by an Indian company, provided the rights shares so issued are being offered at the identical price to residents and non-residents. The offer for right issue shall be made to a Non-resident on the following basis –

• • In the case of shares of a corporation listed on a recognized stock market in India, at a price as determined by the company; and
  • if the case of shares of a corporation unlisted on a recognized stock market in India, at a price which isn’t but the worth at which the offer on right basis is formed to resident shareholders.

COMPANIES LIKE PAYTM LIKELY TO BE COVERED IN E-COMMERCE

• RBI Press release issued on 29 March 2016 allowed 100% (One hundred per cent) FDI under the automated route in “marketplace model of ecommerce”.
• The “marketplace model” has been defined as a model where the ecommerce entity provides an information technology platform on a digital and system to act as a facilitator between buyers and sellers.
• It’s also been clarified that FDI isn’t permitted in “inventory-based model of ecommerce”. The “inventory-based model” has been defined as a model where the e-commerce entity owns the inventory of products and services which are sold to the consumers directly.

WHOLLY-OWNED SUBSIDIARY VS MERGER IN INDIA

A wholly-owned subsidiary means an entity during which the whole share capital is owned by a far-off company called as a parent or company. the businesses Act, 2013 doesn’t define the term wholly-owned subsidiary properly, but various provisions associated with a far-off company and its registration provide a background of what this kind of company registration means.

There are many modes during which a wholly-owned subsidiary will be set-up in India. These are as follows-

• Private Company
• Company limited by share
• Unlimited Liability Company
• Company limited by guarantee

A merger in India could be a tool which companies uses for expanding their business operations. this is often usually concerned by an organization for increasing the profitability level for long terms.

In commercial terms, a merger in India means to mix two or more industries or firms together. Simply, it means the absorption by some other entity and thereby lose individual identity. the businesses Act doesn’t provide a legal definition of merger.

However, in India, the schemes of merger are governed by various provisions i.e., Section 390 to Section 394A, Section 395, Section 396 and 396A.

REGISTRATION OF A WHOLLY-OWNED SUBSIDARY 

Registration of a Wholly-owned subsidiary:- Following steps are involved in registering a wholly-owned subsidiary of a far-off company in India:

1. Applying for Digital Signature Certificate (DSC): The Indian subsidiary is required to use for a digital signature for all the administrators. the shape for the DSC is to be attested by a practicing comptroller or an organization Secretary in India.
2. The applicant company is required to file Form 1A with the Registrar of Companies (ROC) for the incorporation of foreign company and naming the corporate.
3. A replacement approval must be filed by the applicant that has to be attested by an accountant or a corporation Secretary. Once the name is approved, the following step for incorporation is to be taken.
4. Applying for a Director positive identification (DIN): Apply for a DIN through Form DIN-1 by providing the subsequent documents:

• • Passport
  • Two passport size photographs
  • Affidavit In the format as prescribed by the statutes
  • Present occupation or business of the administrators of the corporate
  • Educational qualification of the administrators
  • Documents posted from the house country, in case the director is from a distant country
  • Form DIN-1 must be attested properly by an organization Secretary or controller practicing in India.

4. Registering the wholly-owned company: the corporate to be incorporated must submit all the specified documents together with the Memorandum of Associations (MOA) and Articles of Associations (AOA). The Memorandum of Association of the proposed company must be stamped properly by paying the stamp fees which is 15% of the authorized capital of the corporate to be incorporated.

Once the stamp tax moreover as ROC fees is paid, the Registrar thoroughly verifies the filed documents. the subsequent are to be approved by the ROC-

• • Form DIR-12 that has to be approved through an easy procedure.
  • ROC Form INC-7 must be verified in a very detailed manner.
  • Form INC-22 must be approved through straight process in addition.
  • If in any case the Registrar of Companies proposes any changes to be made In the application, the corporate is required to try to the identical accordingly.
  • Once the Registrar is satisfied with the applying, an Incorporation or Registration Certificate is distributed to the applicant through email.

HOW RAJPUT JAIN & ASSOCIATES, HELP

We at RJA, with our team of professionals & experts, can help the foreign entities in business registration in India. we are going to make sure of all the compliances related work for the businesses both online and offline. better planning can make the complete process hassle free and smooth. to understand more, please visit www.carajput.com. or call us +91-9-555-555-480

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