What are the main legal requirements for setting up a subsidiary in India

To set up a subsidiary in India, foreign companies must comply with several legal requirements as outlined in the Companies Act of 2013 and relevant regulations. Here are the main legal requirements for establishing a subsidiary:

Key Legal Requirements

1. Directors: A minimum of two directors is required, with at least one being a resident Indian. The resident director must be physically present in India and cannot be a Non-Resident Indian (NRI) or Overseas Citizen of India (OCI) .
2. Shareholders: At least two shareholders are necessary. These can be foreign entities or individuals.
3. Company Type: The subsidiary must be registered as a Private Limited Company or a Public Limited Company. For a Private Limited Company, the parent company must hold at least 50% of the shares.
4. Director Identification Number (DIN): All directors must obtain a DIN, which is a unique identification number issued by the Ministry of Corporate Affairs (MCA).
5. Digital Signature Certificate (DSC): A DSC is required for online filing of documents and applications.
6. Company Name Approval: The proposed name of the subsidiary must be unique and must comply with the MCA guidelines. Approval for the name is obtained through the MCA’s online portal.
7. Memorandum and Articles of Association (MoA and AoA): These documents outline the objectives, rules, and regulations governing the subsidiary. They must be prepared in accordance with the Companies Act.
8. Incorporation Application: Submit the incorporation documents, including the MoA, AoA, and other required forms using the SPICe+ form on the MCA portal. This includes payment of registration fees based on the authorized capital of the subsidiary.
9. Certificate of Incorporation: After the documents are verified, the Registrar of Companies (RoC) issues a Certificate of Incorporation, which officially registers the subsidiary.
10. Tax Registrations: Apply for a Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) from the Income Tax Department. Additionally, if the subsidiary engages in taxable activities, it must register for Goods and Services Tax (GST).
11. Bank Account: After registration, the subsidiary must open a bank account in its name. This can often be done remotely.
12. Compliance with FDI Regulations: Depending on the sector, prior approval from the Reserve Bank of India (RBI) may be necessary for Foreign Direct Investment (FDI). Certain sectors have restrictions on foreign ownership.

By adhering to these requirements, foreign companies can successfully establish a subsidiary in India, allowing them to operate within the country’s legal framework while leveraging local market opportunities.