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Subsidiary-Public Limited

Foreign direct investment in India has mainly have two entry routes, Automatic & Approval route, FDI under approval route requires approval of FIPB before making investment in India were as no prior approval require for making FDI through automatic route, although post intimation to RBI (Reserve bank of India) within 30days of receipt of investment money in India and particulars of allotment of shares is required.

A foreign entity can enter in Indian business market mainly by two options, either by establishing a Liaison/Branch/Project office in India or incorporating a “PUBLIC LIMITED COMPANY” that is subsidiary of the foreign company intending to make FDI (Foreign Direct Investment) in India.

Details about Subsidiary-Public Limited

A Public limited company is company under companies Act 2013 which has a separate legal existence from its members and allows to offer shares to general public. These companies are required to add word ‘limited’ after their names and must have minimum three directors and minimum seven members to incorporate, There is no restriction on the maximum number of members in comparison to a private limited company where maximum no members shall not exceed 200 . These companies can raise funds from general public by selling its shares and the shares allotted to the members are freely transferable. Public limited companies have perpetual succession and the liability of each member is limited to the extent of the amount of shares subscribed by them, It is a preferred form of incorporation for companies who intend to list their share on any stock exchange having nationwide trading terminal.

Features

  • Legal Status

    As a juristic legal person, both company and members have separate legal identity that is distinct from each other. Unlike members/shareholders, company is not a natural person but though it can purchase or sell properties in its own name, can sue or be sued by/from parties without any restrictions.

  • Perpetual succession

    A company’s existence is uninterrupted and continues for a indefinite period, death or insolvency of its shareholder(s) does not affect the continuity of business. A member may come or go but the company continues to exist for long, until it is legally dissolved.

  • Prohibited sectors for foreign investment through a private limited company

     Atomic Energy  Lottery Business  Gambling and Betting  Business of Chit Fund.  Nidhi Company  Agricultural (excluding Floriculture, Horticulture, Development of seeds, Animal Husbandry, Pisciculture and cultivation of vegetables, mushrooms, etc.  Housing and Real Estate business (except development of townships, construction of residen-tial/commercial premises, roads or bridges  Trading in Transferable Development Rights (TDRs).  Manufacture of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes.

  • Foreign National Directors

    Public limited companies are required to have minimum three directors out of which one should be compulsorily a resident of India, rest other directors can be foreign nationals.

  • No minimum capital requirement

    Public company does not have to comply with any minimum capital requirement, although fee must be paid to the Government for issuing a minimum of shares worth Rs.1 lakh [Authorized Capital Fee] during the incorporation of the Company.

  • Borrowing Capacity

    Public companies have may option open for raising funds such as issue of shares to public, issue of debentures, public deposits and loan from banking and financial institutions Banking and financial institutions prefer to lend large financial assistance to a public limited company rather than partnership firms or proprietary concerns. Public company has varied option to raise money.

Pros & Cons

Pros

  • Shares of a company limited by shares are easily transferable by a shareholder to any other person. If a business has to be sold off as a going concern entire shareholding could be transferred to the purchaser thus facilitates easy change in management and ownership.
  • It’s easy to raise funds for a private company from financial institutions and can also issue debentures for raising funds. 100 % Foreign Direct Investment is permissible in many industries under Automatic route.
  • Public limited companies provide flexibility to trade in stock exchange, If a company’s share have a positive market in stock exchange it automatically enhance the goodwill and brand value of the business and generate huge potential investors for the company.
  • A public limited company allows 100% FDI through automatic route (except the prohibited Sector) and prior approval of FIPB (Foreign Investors Protection board) required in case of approval route.

Cons

  • Statutory obligations and compliance requirement on a public limited company is more in comparison to private limited companies. Public limited companies are required to comply with stringent norms of Companies Act 2013 and mandatory fillings with ROC (Registrar of Companies) which increases the operation cost of a public limited company.
  • In public limited companies cannot have complete control over the management decisions due to participation of public in decision making process. The objective of management and shareholders may vary, which might lead to some clashed and cause delay in the decision making process.
  • For a public limited company public disclosure of financial affairs is necessary it has to file several documents with the Registrar of Companies. Its annual accounts are published and its records are open for inspection to public. Therefore, business secrets cannot be guarded effectively.
  • Winding up of a public limited company is a tedious process and has to follow the mechanism provided in the companies Act 2013 thus overall cost involve in the process is comparatively high.

Applicable Taxes & Compliances

Private limited companies are subject to tax rate of 40% on tax profits. Tax profits are computed based on certain adjustments over book profit as per Indian Income tax law. The aforesaid tax rate is to be increased by surcharges and applicable cess as well. Currently surcharge is 7% of such tax, where total income exceeds one crore rupees but not exceeding ten crore rupees and at the rate of 12% of such tax, where total income exceeds ten crore rupees. Further 2% Education Cess and 1% Secondary and Higher Education Cess is also payable on tax amount and surcharge.
Service tax is a tax levied by Government of India on services provided or to be provided excluding services covered under negative list or mega exemptions as defined in service tax law. At present, the consolidated rate of service tax is 15% on the value of services. However service tax liability may arise on reverse charge basis, where service tax is paid by service recipient for prescribed services at prescribed rates.
Value Added Tax is a state level legislation attracts on intra state sale of goods in India and on Inter-state sale of goods Central sales shall apply. It is a type of consumption tax which is imposed on the value of goods and services on each stage of its production and at final sale. Normally, the rate of Vat varies from state to state. The standard rate of VAT is 20% on the selling price.
In India, excise duty is livable on manufacturing of goods and it is ultimately borne by the consumer as it a consumption based tax. It is governed by The Central Board of Excise and Customs (CBEC) under the Ministry of Finance, Government of Revenue. The Liability to pay excise duty to the government lies with the producer of goods. At present, the rate of excise duty is 12.5% as per the excise law.
Import Export (IE) Code is mandatorily required to be obtained by any person/business entity importing or exporting goods and services to/from India unless specifically exempted. IE Code is a 10 digit unique code issued by Director General of Foreign Trade, Ministry of Commerce and Industries, Government of India to facilitate and identify all import and export to/from India. Private Limited Company engaged in export/import activities is required to obtain IE Code.
It is a tax imposed on the transaction value of goods imported in India and exported outside India. It is governed by The Central Board of Excise and Customs (CBEC) under the Ministry of Finance, Government of Revenue. Custom Duties are usually levied with ad valorem rates on the base value of the transactions in the event of Import/Export of goods.
Private Limited Company are also required to obtain Permanent Account Number (PAN), Tax Deduction and Collection Account Number (TAN), Service tax Code, ROC registration, Professional Tax and other statutory registrations as may be applicable. Periodic compliances include TDS Return, Service Tax Return, Income Tax Return, Annual Activity Certificate, PF/ESI returns etc. as may be applicable.
Labour laws in India are those bodies of laws which define the rights and obligations of workers, union members and employees working in an organization. Labour law covers Industrial relations, health and safety measures at workplace, define Employment standards and interlinks relationship between employees, employers and the government. Labour law is further divided into two broad categories i.e. collective labour law & individual labour law. Individual Labour law covers the rights of employees at workplace or at any contract of work whereas the collective labour laws governs the tripartite relationship between employee, employer and union. Some of the laws included in it are:

Employees Provident Funds and Miscellaneous Provisions Act, 1952

The Act is applicable to every establishment in which twenty or more persons are employed and a factory engaged in any industry specified in Schedule I of Act. Under this act both the employer and employee has to contribute 12% of the basic + Dearness Allowance of the employee’s salary to the EPF and EPS on monthly basis. The objective of this act is to provide financial security and stability in cases where employee no longer fir to work or at the time of retirement.

The Employees State Insurance Act –

Under this act the employer and employee has to contribut e 4.75% and 1.75% each of the gross salary to ESIC. Its objective is to provide benefits to employees in case of sickness, injury or related matters. This act is applicable to the employees whose wages are up to 15000 pm.

The Payment of Gratuity Act –

Gratuity is a reward offered by the employer to his employee in the event of termination of his employment provided continuous service for not less than 5 years except in case of death or disablement of employee. Payment of gratuity is mandatory for those employers having more than 10 employees in an organization/factory/plantation/port/shops/mines etc. as per the provisions contained in Gratuity Act, 1972. Gratuity shall be payable @ 15 days wages for every year of completed service.

Procedure

How long Does It Take?

Apply and obtain DIN or DSC

1-5 Days

Obtaining DSC is the first and foremost step while incorporating private limited company and it can be applied online through any of the authorised dealers. Application for DIN is filled through online mode in prescribed Form DIR-3 based on the information of the applicant and is to be submitted before the Ministry of Corporate Affairs website i.e. www.mca.gov.in along with the requisite documents of the applicant and prescribed fees.

Apply and Obtain Name Approved by ROC

5-10 Days

Application for reservation of the name for the proposed company is required to be filed online in prescribed Form INC-1 along with minimum one and maximum six proposed name in order of preference and is to be submitted before the Ministry of Corporate Affairs website i.e. www.mca.gov.in by paying the prescribed fees.

Drafting and Filling MOA, AOA and other incorporation documents with ROC

5-10 Days

Incorporation documents Such as Memorandum of association (MOA) and Articles of association (AOA) along with various declaration from directors/members (INC-9,DIR-2,MBP-1) are drafted and filled before the registrar in Form- INC-7,INC-22 and DIR-12 along with the prescribe fees and stamp duty as prescribe rates of Government.

Obtaining certificate of incorporation

2-3 Days

After due scrutiny and verification of documents submitted by the applicant, the ROC will issue certificate of Incorporation if everything goes fine otherwise requirement of resubmission would be raised up. The time period in receiving Certificate of Incorporation may vary and depending on the location and other factors.

FAQ

  • What are the requirements to be a Director?

    The Director needs to be over 18 years of age and must be a natural person. There are no limitations in terms of citizenship or residency. Therefore, even foreign nationals can be Directors in a Indian Private Limited Company.

  • Do I have to be present in person to incorporate a Limited Company?

    No, you will not have to be present at our office or appear at any office for the incorporation of a Limited Company. All the documents can be scanned and sent through email to our office. Some documents will also have to be couriered to our office.

  • How long will it take to incorporate a Company?

    Generally, to incorporate a Limited Company it takes around 14-20 days. The time taken for incorporation will depend on submission of relevant documents by the client and speed of Government Approvals. To ensure speedy incorporation, please choose a unique name for your Company and ensure you have all the required documents prior to starting the incorporation process.

  • How long is the incorporation of the Company valid for?

    Once a Company is incorporated, it will be active and in-existence as long as the annual compliances are met with regularly. In case, annual compliances are not complied with, the Company will become a Dormant Company.

  • What is Director Identification Number (DIN)?

    Director Identification Number is a unique identification number assigned to all existing and proposed Directors of a Company. It is mandatory for all present or proposed Directors to have a Director Identification Number. Director Identification Number never expires and a person can have only one Director Identification Number.

  • Can NRIs / Foreign Nationals be a Director in a Limited Company?

    Yes, a NRI or Foreign National can be a Director in a Limited Company after obtaining Director Identification Number. However, at least one Director on the Board of Directors must be a Resident India.

  • What are FDI Guidelines for Foreigners in a Limited Company?

    100% Foreign Direct Investment is allowed in India in many of the industries under the Automatic Route. Under the Automatic Route, only a post-investment filing is necessary with the RBI indicating the nature of investment made. There are a few industries that require prior approval from the RBI, in such cases, approval must first be obtained from RBI prior to investment.

  • Can I trade my shares in Stock Exchange after registering a Public Limited Company?

    No, there are two types of Public Limited Company, unlisted and listed Public company. Unlisted public company has no right to list their shares in Stock Exchanges and only listed companies has the right to list its shares in Stock Exchange. But if you want to register yourself as Listed Public Limited Company, huge compliance and more documentation is involved and it will delay the incorporation process. You can register as unlisted Public Company and then can convert yourself as Listed Public Limited Company.

  • Can an NRI / Foreign National be a director in a Public Limited Company?

    Yes, an NRI or Foreign National can be a Partner after obtaining a DPIN. At least, one of the partners have to be a resident Indian citizen.

Documents Required

DOCUMENTS REQUIRED FOR THE PROCESS

    Documents required from Directors/Promoters

  • Copy of Passport size photograph
  • Copy of Passport (Mandatory)
  • Identity Proof (Voter ID/ Driving License/or any other identity proof of the respective country) any one of the Following with Self Attestation
  • Address Proof (Latest Bank Account Statement/Mobile Bill/Electricity bill/any other utility bill of the respective country) any one not older than 2 months
  • *Note-Documents Should be notarized at the Indian Embassy of the particular country and apostIlization or consularization as the case may be
  • *Note-In case the document is in a foreign language, then it must be translated by an official translator and notarized or apostilled.

    Documents for Registered Office of Proposed incorporated company.

  • Rental agreement/ Lease agreement along with No objection certificate from the owner
  • Sale deed in case of owned property
  • Electricity bill /Property tax receipt/ Water tax receipt/ Telephone bill ,Any One not older than two months.


    Documents required for Foreign Company

  • Certificate of Incorporation of the Foreign Company
  • Resolution passed in favour of Foreign Company to subscribe the shares of the proposed incorporated company
  • Address proof of the Foreign Company (Any utility bill not older than two months).
  • *Note-In addition to the above proofs and documents, a number of documents and affidavits would be drafted by a Professional. These legal documents made specifically for the incorporation must be signed and notarized by the promoters of the Company.