Transcript Setting up of Subsidiary in India This PPT is prepared by P.

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]
• 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
MINIMUM / MAXIMUM
SHAREHOLDERS
NUMBER
MINIMUM DIRECTORS
LIABILITY OF SHAREHOLDERS
MINIMUM PAID-UP CAPITAL
BASIC FEATURES
PRIVATE LIMITED
PUBLIC LIMITED
OF Two/Fifty
Seven or up to the number of
shares
Two
Three
In both the cases, limited to the extent they have subscribed to the share capital
unless agreed otherwise.
INR 100,000
INR 500,000
 No offer can be made to public to
No such restrictions but subject to
subscription to its shares
other compliances.
 Right to transfer shares is restricted
 Cannot invite or accept deposits from
public other than its members, directors
or their relatives.
WHEN IT CAN START BUSINESS
On incorporation
SUITABILITY
Closely
held
entity
with
minimum - For widely held entity.
procedural, reporting, compliances, etc.
- If planning to go for Public
Issue. and
- Listing of shares.
© P. GAMBHIR & ASSOCIATES 2009
On
obtaining
certificate
of
commencement of business from
ROC after incorporation.
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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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CA. Parveen Gambhir
For further information, please visit
PGA at www.pgaindia.in
or E-mail: [email protected] or [email protected]
or 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
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