Setting up of Subsidiary in India This PPT is prepared by P. GAMBHIR & ASSOCIATES (PGA) to provide foreign companies a general information for setting

Setting up of Subsidiary in India

This PPT is prepared by P. GAMBHIR & ASSOCIATES (PGA) to provide foreign companies a general information for setting up a Subsidiary in India and brief introduction of its regulatory and tax aspects. It contains relevant rules prevailing in India in March, 2009.

The information contained in this article is not our comprehensive or exhaustive study but for the general information of the readers. It is not meant to address any particular set of circumstances. We strongly recommend readers to seek professional advice before taking any decision.

For any further information, please visit PGA at www.pgaindia.in or E-mail: [email protected] or [email protected]

© P. GAMBHIR & ASSOCIATES 2009

•Foreign entity may set up a Subsidiary Company in India that can be private or public limited company, with or without limited liability.

•In India, the companies are incorporated and regulated under the provisions of the Companies Act, 1956.

•Individual directors are required to obtain DIN (Directors Unique Identification Number) from the Ministry of Company Affairs.

•The liability of the members can be limited by shares or guarantee.

•In case of a company with limited liability, the liability of its members is limited to the extent of amount unpaid on the shares held by them or a pre-committed/guaranteed amount.

•For a company with unlimited liability, the liability of its members is unlimited.

•Subsidiary can either be a wholly owned or in joint venture with some Indian partner. Except in the sectors where Foreign Direct Investment (FDI) cap is applicable, foreign entity can have 100% subsidiary.

•No RBI approval is needed where 100% direct investment is permissible.

•Subsidiary is treated as a domestic company.

•Funding is possible in the form of Share Capital and business operations. Thin Capital Rule applies in India.

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PARTICULARS PRIVATE LIMITED PUBLIC LIMITED

MINIMUM / MAXIMUM NUMBER OF SHAREHOLDERS

Two/Fifty Seven or up to the number of shares

MINIMUM DIRECTORS Two ThreeLIABILITY OF SHAREHOLDERS In both the cases, limited to the extent they have subscribed to the share capital

unless agreed otherwise. MINIMUM PAID-UP CAPITAL INR 100,000 INR 500,000BASIC FEATURES No offer can be made to public to

subscription to its shares Right to transfer shares is restricted Cannot invite or accept deposits from

public other than its members, directors or their relatives.

No such restrictions but subject to other compliances.

WHEN IT CAN START BUSINESS On incorporation On obtaining certificate of commencement of business from ROC after incorporation.

SUITABILITY Closely held entity with minimum procedural, reporting, compliances, etc.

- For widely held entity.- If planning to go for Public Issue. and- Listing of shares.

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Activities Permitted

It can undertake all types of business activities, as permitted by its Charter that may include marketing, manufacturing, providing of technical or consultancy services, etc.

Activities not permitted

It cannot undertake any activity that is outside the preview of its Charter or an activity barred by law.


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Tax Implications

•It is treated as a domestic Indian company under Indian tax laws and is eligible for all tax deductions and benefits as available to any other Indian company. •Liable to pay Fringe Benefit Tax on the value of fringe benefits provided and deemed to be provided to its employees. •Dividend is tax free in the hands of shareholders but subsidiary is liable to pay Dividend Distribution Tax (DDT) on the amounts paid or declared as dividend.

Transfer Pricing Rules:

Transactions between subsidiary and parent/associated entities are subject to Transfer Pricing (TP) Regulations.

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Advantages Easy operations; Less formalities; and Simple exit route.

Formation time 2-3 weeks after receipt of the relevant information.


Where a foreign entity has business presence in India and wishes to undertake vide range of activities

and intend to operate in a flexible manner for longer duration.

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For further information, please visit PGA at www.pgaindia.in

or E-mail: [email protected] or [email protected] contact us at:

87-B, Masjid Moth – II, DDA Flats, Greater Kailash - III New Delhi - 110 048 (INDIA)

Tel/Fax: +91 11 2922 3838, +91 98112 52946

CA. Parveen Gambhir

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Setting up of Subsidiary in India This PPT is prepared by P. GAMBHIR & ASSOCIATES (PGA) to provide foreign companies a general information for setting