Indian Subsidiary of a Foreign Company
An Indian Subsidiary Company
A subsidiary company is a corporate entity that is bought, partially or wholly, by another company incorporated in a foreign country. The said foreign company is called the parent, or holding, company in this scenario. Forming a subsidiary is the most preferred way of expanding one's business globally.
In order to form a subsidiary, at least 50% of the company's equity shares must be bought by the parent company. When 100% of the company's shares are owned by the holding company, then the daughter company becomes a wholly-owned subsidiary.
Benefits of an Indian Subsidiary Company
There are several benefits that an Indian Subsidiary Company can enjoy such as they gain access to a larger market, increasing their growth opportunities. Their shares are easily transferable to others. Such a company is also recognized as a separate legal entity, providing them with the freedom to avail govt. benefits, own (acquire and alienate) property under its own name and enjoy perpetual succession. The greatest benefit is that in many sectors Foreign Direct Investment into such companies doesn't require any governmental approval.
Compliances and Treatment of Share
RBI Compliances:
Whenever a company raises funds from a foreign investor, they have to follow a two-stage reporting practice which is:
- By the time of receipt of funds: Such transactions have to be reported to RBI in details, within 30 days of receiving funds from foreign investor(s).
- The company’s shares should be allotted within 180 days from the date of receiving funds.
- On allotment of the shares, the company has to report in specified form (FC-GPR) to the RBI, within 30 days from the time of issue of shares.
