Establishment of Foreign Entity in India

Establishment of Foreign Entity in India

The process of merger in India is court driven which suggests it will be time constraining and may be little bit of problematic. The merger in India includes the subsequent steps-

1. Authorization as per Memorandum of Associations (MOA): It must be thoroughly checked whether the memorandum authorizes the merger in India or not. If not, then an Object Clause must be added to the identical.
2. Drafting of the scheme of the merger in India: The transferor company and therefore the transferee company must draft a scheme document for the merger. The scheme must contain the subsequent details-

• • Details of the transferor company
  • Details of the transferee company
  • Main objects of a memorandum of both companies
  • Brief description regarding the explanations of the merger in India
  • Definition clause
  • Nature of business
  • Shareholdings related details of both the businesses
  • Date of appointment or transfer of the corporate into the merger
  • Issues and allotment of shares
  • Transfer of all the assets and liabilities of the transferor entity.

3. Obtaining approval from the corporate’s Board of Directors: The merger in India requires approval from all the involved directors in both the company. the corporate must pass a resolution for the identical and authorize a director or CS or other officers to form an application to the National Company Law Tribunal (NCLT).
4. Obtaining approval from stock exchanges for the listed companies: In case a listed company is involved jointly of the parties in the merger in India, then the draft must be filed with the stock exchanges it’s registered with for obtaining approval.
5. Filing application with NCLT for convening the meeting of the members and creditors: this can be a vital step in the process of merger in India. the businesses must file an application in Form NCLT-1. A notice of admission is required to be filed in Form NCLT-2 and along with this, an affidavit in Form NCLT-6, is also required to be submitted.
6. Convening a gathering with the members and creditors of the company: the businesses in the merger in India must convene a gathering for all the creditors and members for approving the scheme of merger, as per the directions provide by NCLT.
7. Approval of the scheme from Regional Director and Official Liquidator: the businesses are required to urge approval for the scheme from the Regional Director, Official Liquidator, banking concern of India, Competition Commission of India and other concerned institutions.
8. Filing a final petition for the merger in India with NCLT: the businesses are required to file Form CAA-5 for finalization of the merger scheme.
9. Order of approval from NCLT: in the last step of merger in India, the businesses are required to get an order of approval from the NCLT. the identical is to learn to the Registrar of Companies (ROC) in Form INC-28.

If the NCLT doesn’t sanction an order then the businesses can file an appeal for the method of merger in India to the National Company Law Appellate Tribuna

TYPES OF COMPLIANCES FOR FOREIGN SUBSIDIARY COMPANIES IN INDIA

• With increasing globalization and liberalization, many of the foreign companies are finding greater prospects for entering India for growing their business portfolio and thereby undertaking diversification.
• All the businesses whether Indian or foreign that are established and founded in India must follow the norms and regulations prescribed by the statutes and formulated by the govt.
• The difference is that the compliances to be done by a far-off subsidiary in India as compared to the Indian entity are way more.
• Section 2(42) of the businesses Act, 2013 defines a far-off company as- Foreign company is a company or body corporate, which has been incorporated outside India and,
• Has a place of business in India, either by itself or through an agent, whether in physically or through electronic mode; and

• Conducts any enterprise in India in the other manner.

As per the regulated norms, laws, and statutes, there are three basic forms of compliances that are time-based. kinds of compliances for foreign subsidiary must be fulfilled as per their intermittency which is as follows-

1. Annual Compliances for foreign subsidiary: These are the compliances for foreign subsidiary companies that has to be completed on an annual or yearly basis. The norms under this must be met mandatorily by the corporate once for every year. Either a wholly-owned company or partially-owned subsidiary, whatever sort of foreign company it’s, these annual compliances must be done every year-

• • Compliances for foreign subsidiary under Federal Reserve Bank of India (RBI).
  • A Compliances, as applicable on the said entity, under the Securities Exchange Board of India (SEBI) rules and regulations.
  • Compliances, as provided under the FEMA (Foreign Exchange Management Act).
  • Filing of returns in respect of Tax Deducted at Source (TDS) dedcuted as per Income Tax Act.
  • Compliances associated with regulations for ESI and EPF.
  • Annual financial statements including the subsequent statements-
• Transfer of funds
  • Repatriated earnings and income
  • Party related transactions like sales, property transfer, purchases, etc.
  • Different filings related to Goods and Services Tax.
• Compliance for foreign subsidiary also includes filing the subsequent forms duly-
  • Form FC-1
  • A Form FC-3
  • Form FC-4

2. Event-based Compliances for foreign subsidiary: Another kind of compliance for the foreign subsidiary is that the event-based ones. this means that such compliances are required to be fulfilled by the corporate particularly while guaranteeing actions or in important events. As per the regulations and guidelines of the banking concern of India (RBI) and interchange Management Act (FEMA), there are two event-based compliances for foreign companies. These are-

• • Form FC-TRS: This needs to be filed when the shares of the foreign company are being transferred between an Indian resident to a non-resident investor and vice-versa. Such transfers are allowed by the means of sale or a present.
  • As per the policies framed under Foreign Direct Investments (FDI), such a transaction or transfer is required to be intimated within 60 days from the date of the transaction.
  • It’s to be noted that the duty to file Form FC-TRS as compliance for foreign subsidiary because the case is also totally resting upon the Indian resident or the corporate investee. It doesn’t matter whether the Indian resident may be a transferor or the transferee.
  • Form FC-GPR: this type concerns the remittances or payments that are received by the foreign subsidiary company’s shareholders. it’s to be filed to specify the mode through which such transfers are made by the corporate.

3. Periodic Compliances for foreign subsidiary: These are the compliances for a distant subsidiary that must be completed on a periodical basis. These compliances unlike the annual compliances are to be done multiple times during a year at regular intervals. These may be based monthly, quarterly, or half-yearly as per the necessities.

IMPORTANCE OF MEETING THE COMPLIANCES FOR FOREIGN SUBSIDIARY

All the above-mentioned compliances for foreign subsidiary must be mandatorily met regardless of their occurrence time. If the corporate fails to meet them then there will be severe consequences like penalties, interests, and types of punishment.

If non-compliance is severe then the corporate may also face criminal charges and accusations under the applicable laws. Section 392 of the businesses Act, 2013 states the penalties to be levied for non-compliance for the foreign subsidiary. This section was effective from April 1, 2014, and provides for the following –

Punishment for contravention:

Without prejudice to the provisions of section 391, if an overseas company contravenes the provisions of this Chapter, the foreign company shall be punishable with a fine which shall not be but One Lakh rupees but which can be three Lakh rupees.

In the case of a seamless offense, with an extra fine which can touch fifty thousand rupees for each day after the primary during which the contravention continues and each officer of the foreign company who is in default shall be punishable with imprisonment for a term, that can be extended to six months or with minimum fine of twenty-five thousand rupees, which can be extended to five lakh rupees, or with both.

Section 392 and therefore the penalties it states for not meeting the wants under compliances for foreign companies are often explained as under-

• If the foreign subsidiary is found guilty of contravening any of the provisions under chapter XXII of the businesses Act, 2013 and notwithstanding with anything stated in Section 391 of the Act, in such cases the corporate is often punished and levied with a fine or penalty of not but Rs. 1 Lakh.
• This penalty will be extended up to Rs. 3 Lakh as per the severity of not meeting the compliances for foreign subsidiary. If in case the corporate continues to offend the regulations, then a penalty of Rs. 50,000 per day basis are added up to the date of continuation of the non-compliance.
• Each and each officer at the default of the foreign subsidiary are charged with punishment of imprisonment for a period no more than 6 months or they’ll be levied with a fine of Rs. 25000 which is extendable up to Rs. 5 Lakh.

Therefore, it’s utterly important to fulfil all the compliances for foreign subsidiary and also the parent firm for continuing the business without a hassle and interference from the regulatory bodies or authorities.

CERTAIN PROVISIONS APPLICABLE TO FOREIGN COMPANY

Under Section 384 of Companies Act, 2013, the following provisions shall be applicable to a foreign company –

1. Corporate Social Responsibility (CSR):

The provisions of CSR are applicable to Foreign Company having branch office or project in India if it fulfils criteria of ‘Net Profit’ or ‘Turnover’. The criteria of earnings etc. apply only to business operations in India in case of foreign Company/ Project Office.

2. SECTION 71: – (Debentures)
The provisions of Sec 71 of Companies Act, 2013 shall apply mutatis mutandis to a far-off Company.

3. SECTION 92: – (Annual Return)
   The provisions of Sec 92 of Companies Act, 2013, shall subject to such exceptions, modifications and adaptations as could also be made therein by rules made under this Act, apply to a foreign company as they apply to an organization incorporated in India.
4. SECTION 128: – (Books of Account)
   The provisions of Section 128 of Companies Act, 2013, shall apply to a far-off company to the extent to requiring it to stay at its principal place of business in India, the books of account observed therein section, with relevancy monies received and spent, sales and purchases made and assets and liabilities, in the course of or in regard to its in India.
5. SECTION 77-87: – (Charge)
   The provisions of Chapter VI of the 2013 Act shall also apply to these companies and related to charges on properties which are created or acquired by any foreign Company. Such charges, when created, shall be filed electronically in e-form. Also, on the satisfaction of charge, the same shall be filed in e-form as well.
6. SECTION 206-229: – (Inspection, Inquiry and Investigation)
   The provisions of Chapter XIV of the 2013 Act shall apply mutatis mutandis to the Indian business of a far-off Company as they apply to an organization incorporated in India. The provisions in respect of Inspection and investigation shall be applicable to foreign Company as well.

PARTICULARS ASSOCIATED WITH DIRECTORS AND SECRETARY

A foreign company is required to furnish all the particulars or details associated with the administrators and secretary to the Registrar of Companies (ROC). the subsequent points must be kept in mind while fulfilling this compliance for foreign company-

1. Within thirty days of registration or incorporation of the business and its place of business in Indian Territory, a foreign company must provide all the knowledge as laid out in Section 380(1) of the businesses Act, 2013 together with the list and particulars associated with all the administrators and secretary in the company to the Registrar of Companies (ROC).
2. The list regarding the administrators and secretary must contain all the prescribed details for every and each person included in the given list.
3. Every foreign company must file Form FC-1 with the registrar within thirty days of registering its place of business. Such form is to be filed together with the prescribed fees as per the businesses (Registration Offices and Fees) Rules, 2014.
4. Also, the corporate is required to supply the documents for company registration as per the Section 380(1) of the businesses Act, 2013 that has to be supported by attested approval copy from the banking company of India under the exchange Management Act (FEMA) and other regulatory bodies for approving the place of business of the corporate.
5. If a certified representative of the foreign company provides with a declaration, then therein case no approval is required.
6. In case any alterations are to be made in the documents submitted to the Registrar of Company (ROC), the foreign company must file Form FC-2 under Section 380(1) of the Act together with the prescribed fees in the Companies (Registration Offices and Fees) Rules, 2014.
7. The shape is to be filed for providing all details and particulars associated with the alteration. Foreign company must fit above within thirty days from the date of creating such alterations or its occurrence.

FINANCIAL STATEMENTS OF THE FOREIGN COMPANY

As a part of the compliance for foreign company, it must prepare financial statements regarding the business operations as per the Schedule III of the Act for every year.

1. The subsequent must be included in the financial statements of the corporate for complete compliance for foreign company:

• • All the documents that have got to be attached as per the provisions of Chapter IX of the businesses (Accounts) Rules.
  • The parent or company must submit the newest copies of the consolidated financial statements to the concerned authority or bodies in the host country as per the provisions and regulations formulated there.
  • In case the documents don’t seem to be in English then the corporate must submit an authorized translated copy of the documents in English.
  • Such translated certified copy is to be provided as per the Section 380(2) of the businesses Act, 2013.

2. As a part of the compliance for foreign company, it shall file the subsequent documents attached with the financial statements-

• • Repatriation statements of the profits.
  • The Related party transaction statements.
  • Fund transfer statements associated with any transfer made between the foreign company and other related party outside India.

All the above-mentioned documents and other related ones must be submitted to the ROC within six months from the last date of the previous twelvemonth. the amount to submit such documents is extended to up to a few months and no more than that by the ROC for any special reasons, as provided by the entity in an application, in the prescribed format.

AUDIT OF ACCOUNTS OF THE FOREIGN COMPANY

• Post registering foreign company registration in India, they’re required to induce their accounts audited at regular intervals. Under Section 381(1) and Rule 4 of the businesses Act, every foreign company incorporated in India are required to induce its accounts audited by a practicing controller in India or a firm of Chartered Accountants.

PLACE OF BUSINESS OF FOREIGN COMPANY

• Every foreign company shall file details in form FC3 regarding all the place of business of the corporate in India and therefore the locations till the date up to which the record has been prepared. it’s a vital compliance for foreign company and must be fulfilled for avoiding any penalty.

ANNUAL RETURN FILING

• Under the Form FC-4, the foreign company is required to file their annual returns with the registrar. The said filing shall be made within sixty days from the end of the relevant year. The prescribed fees are to incline together with the shape to complete this compliance for foreign company.

DOCUMENTS IN PROSPECTUS OF FOREIGN COMPANY

The following documents are required to be annexed or attached along with the prospectus of the company-

• The consent obtained from an expert, in respect of issue of the prospectus.
• ScanCopy of the underwriting agreement.
• Copy of the appointment contracts of the director and managers in the company. in case a written contract isn’t provided then the compliance for foreign company is to be completed by giving full details and particulars in an exceedingly memorandum.
• If the prospectus is signed by a certified agent of directors, then a replica of power of attorney is to be submitted.
• Copy of fabric contracts that has been entered in the last two preceding years but not in the ordinary course of the business operation.

LIMITATION ON FOREIGN COMPANY

1. Restrictions under FEMA: a foreign company needs to adhere to restrictions regarding conduction business, ownership of property etc. as prescribed by RBI under FEMA.
2. Fundamental rights available to citizen not available: Foreign Companies don’t have fundamental right guaranteed under Article 19(1)(f) of Constitution of India.

HOW RAJPUT JAIN & ASSOCIATES,  Help?

We at Rajput Jain and Associates, with our team of experts and professionals, can help the foreign entities in business registration in India. whole process of Company registration is kind of comprehensive and time consuming however, 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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