Establishing a Wholly Owned Subsidiary (WOS) in India is a strategic option for foreign companies seeking direct access to one of the world’s fastest-growing economies. Under Indian law, a wholly owned subsidiary is a separate legal entity incorporated under the Companies Act, 2013, with 100% of its shareholding held by a foreign parent company. This structure enables full operational control while ensuring compliance with Indian regulatory requirements.
The incorporation process for a WOS involves multiple legal and procedural stages governed by the Ministry of Corporate Affairs (MCA), the Reserve Bank of India (RBI), and the Foreign Exchange Management Act (FEMA). Below is a step-by-step breakdown of the incorporation and post-registration formalities.
1. Digital Signature Certificate (DSC)
To initiate the registration process, Digital Signature Certificates (DSCs) shall be obtained for all proposed directors. DSCs are used for electronically signing incorporation documents submitted to the Ministry of Corporate Affairs (MCA) portal. This is a mandatory prerequisite for filing incorporation forms online.
2. Name Approval
Once DSCs are in place, the next step is to apply for company name approval through the SPICe+ Part A form. The proposed names, aligned with the company’s objectives, are submitted to the MCA. The name may reflect the parent company’s branding or trademark, subject to approval.
3. Incorporation Filing
After name approval, incorporation is carried out through the SPICe+ integrated form (Parts B and C), covering multiple statutory registrations in a single filing. These include:
- Company Registration
- Director Identification Number (DIN)
- Permanent Account Number (PAN)
- Tax Deduction and Collection Account Number (TAN)
- Bank Account Setup
- Goods and Services Tax (GST) Registration
All required declarations, MOA, AOA, and KYC documents of directors and shareholders are submitted electronically via the MCA portal.
4. Post-Incorporation Compliance
Upon successful registration, the newly incorporated subsidiary must:
- Conduct its first Board Meeting within 30 days
- Appoint a statutory auditor
- File a declaration of business commencement (Form INC-20A)
These steps are essential to ensure the legal activation of the company’s operations in India.
5. Investment Structure Considerations
The parent company shall carefully assess the most appropriate structure for setting up its subsidiary. Options may include:
- Utilizing a Non-Resident Ordinary (NRO) Account
- Investing via Direct Foreign Investment, either under the Automatic Route or Government Route
- Acquiring an existing Indian company
Each structure involves distinct regulatory obligations in terms of repatriation, FEMA reporting, and supporting documentation. Selecting the right structure is critical for aligning incorporation with the parent company’s operational and compliance objectives.
Setting Up a Wholly Owned Subsidiary in India – Concept and Strategic Rationale
Expanding into the Indian market presents a wealth of opportunity for global businesses, but entering a new jurisdiction can pose legal, operational, and financial challenges. For a foreign company—let’s say XYZ Corporation—looking to establish a presence in India, incorporating a Wholly Owned Subsidiary (WOS) offers a structured and compliant pathway for market entry.
What is a Wholly Owned Subsidiary (WOS)?
A Wholly Owned Subsidiary in India is a separate legal entity incorporated under Indian law, wherein 100% of the shareholding is held by a foreign parent company. In this arrangement, XYZ Corporation establishes a private limited company (or, where applicable, a public company) under the Companies Act, 2013, with complete ownership and decision-making control.
This structure allows foreign investors to build an independent legal presence in India while aligning operations with the parent company’s global objectives.
Why Should a Foreign Company Consider a Wholly Owned Subsidiary in India?
Establishing a WOS provides multiple advantages—legal, commercial, and strategic:
1. Local Market Entry with Legal Presence
Registering a WOS enables the foreign parent company to conduct business activities in India as a locally incorporated entity, which significantly enhances its credibility with Indian customers, vendors, government bodies, and financial institutions. This structure facilitates regulatory approvals, tender participation, and contractual engagements under Indian law.
2. Limited Liability Protection
A critical benefit of setting up a WOS is the limited liability framework. The parent company’s financial exposure is limited strictly to the capital invested in the Indian subsidiary, thereby safeguarding the parent’s global assets from potential business liabilities in India.
3. Operational Autonomy and Flexibility
Operating through a WOS offers the flexibility to tailor strategies, workflows, and pricing models specifically to Indian market conditions. The subsidiary can function independently while aligning with the overarching goals of the parent organization, enabling responsive, localized decision-making.
4. Access to Government Incentives
Depending on the industry and geographical location, foreign-owned subsidiaries in India may benefit from state-level and central government incentives, including subsidies, tax holidays, and investment-linked deductions. These incentives are typically aimed at boosting foreign direct investment (FDI) and regional economic development.
5. Tax Efficiency (Subject to Planning)
While India has a comprehensive tax regime, careful structuring of the subsidiary’s operations—combined with professional tax advisory—can help foreign entities optimize withholding tax, transfer pricing, and repatriation planning in line with Indian tax laws and double taxation avoidance agreements (DTAAs).
Who Qualifies as a Foreign Entity?
Under Indian regulations, a foreign entity includes:
- Overseas companies incorporated outside India
- Foreign governments and international bodies
- Agencies or divisions of foreign governments
- Trusts, societies, partnerships, or associations not formed in India
Even an Indian citizen acting on behalf of a foreign entity is considered a foreign person for regulatory purposes under FEMA and FDI policy.
Who Is an Indian Entity?
An Indian entity may include:
- Companies incorporated under the Companies Act, 2013
- Limited Liability Partnerships (LLPs) under the LLP Act, 2008
- Partnership firms registered under the Indian Partnership Act, 1932
- Any body corporate or structure formed and registered in India
This distinction is important for determining compliance obligations, tax residency, and investment routes under FEMA.
Wholly Owned Subsidiary vs. Majority-Owned Subsidiary: Key Differences
A wholly owned subsidiary is one in which the parent company holds 100% of the equity shares, leaving no room for minority shareholders. This level of control simplifies governance and strategic alignment.
In contrast, a majority-owned subsidiary is a company in which the parent holds 51% to 99% of the shares, with the remaining held by other investors. While the parent still maintains majority control, it may be required to collaborate with minority stakeholders on critical business decisions.
Foreign companies may initially acquire a majority stake before transitioning to full ownership, especially when entering regulated or sensitive sectors. A wholly owned subsidiary, however, offers the most direct path for international expansion, especially in sectors allowing 100% FDI through the automatic route.
What is an NRO Account?
A Non-Resident Ordinary (NRO) Account is a popular banking facility used by many Non-Resident Indians (NRIs) to manage income or deposits earned in India, such as rent, dividends, pensions, and other receipts. Funds in an NRO account can be held and operated in Indian Rupees. While you can receive and withdraw money in Indian currency, repatriation of funds abroad is subject to certain limits and cannot be done freely in foreign currency.
An NRO account can be held jointly with an Indian resident on a former or survivor basis, or jointly with another NRI. Additionally, transferring funds from an existing Non-Resident External (NRE) account to an NRO account is straightforward and commonly done.
Investment Structures for Foreign Companies Setting Up a Wholly Owned Subsidiary in India
Foreign entities looking to establish a Wholly Owned Subsidiary (WOS) in India have various structuring options available. It is crucial to assess the advantages and disadvantages of each structure carefully before proceeding. Factors such as the business nature, regulatory compliance, and operational timelines influence the choice of the best fit.
Key considerations include:
- Repatriation of profits and capital
- Mandatory filings with the Reserve Bank of India (RBI)
- Valuation requirements
- Document notarization and apostilling
Each of these elements impacts the ease of doing business and compliance in India.
Step-by-Step Process for Incorporation of a Wholly Owned Subsidiary in India
While the Companies Act, 2013 does not explicitly define a “Wholly Owned Subsidiary,” it defines a “subsidiary company” as one where the holding company controls the board or holds a majority of the share capital. Under Foreign Exchange Management Act (FEMA), foreign companies may incorporate a WOS, joint venture, associate company, or establish a liaison/project/branch office in India.
Prerequisites Before Incorporation
- Minimum Shareholders and Directors: A minimum of two shareholders and two directors is required to incorporate a WOS.
- Residency Requirement: At least one director shall be an Indian resident.
- Director Eligibility: NRIs, Persons of Indian Origin (PIOs), and foreign nationals can serve as directors without restrictions on shareholder residency.
Detailed Incorporation Procedure
1. Obtain Digital Signature Certificates (DSC)
Each proposed director must apply for a Class-3 DSC, providing identity proof, address proof, email verification, and an Indian mobile number.
2. Name Approval via SPICe+ Part A
The proposed company shall submit two possible names through Part A of the SPICe+ form for approval by the Ministry of Corporate Affairs (MCA). Required documents include the No Objection Certificate (NOC) or board resolutions, notarized or apostilled Memorandum of Association (MOA), Articles of Association (AOA), INC-9, AGILE form, KYC documents, and if applicable, trademark registration certificates.
3. File SPICe+ Forms Part B and C for Incorporation
Complete the SPICe+ integrated forms to obtain:
- Certificate of Incorporation
- Director Identification Numbers (DIN)
- Permanent Account Number (PAN)
- Tax Deduction and Collection Account Number (TAN)
- GST Registration
- Facilitation of bank account opening
Post-Incorporation Compliance
After the incorporation of a Wholly Owned Subsidiary (WOS), the company shall adhere to the following statutory compliances:
1. Board Meeting
The first board meeting is required to be convened within 30 days of the subsidiary’s incorporation.
2. Appointment of Auditor
The board must appoint the company’s initial auditor within 30 days from the date of incorporation. This auditor will hold office until the conclusion of the first Annual General Meeting (AGM).
3. Declaration of Business Commencement
Prior to commencing business activities, all subscribers must deposit the subscription amount as specified in the Memorandum of Association (MOA). Subsequently, within 180 days of incorporation, the company must file Form INC-20A, declaring commencement of business with the Registrar of Companies (RoC).
4. Display of Company Name
Every registered office and place of business must display the company’s name, registered office address, Corporate Identification Number (CIN), contact details, and GST number, prominently at the entrance.
5. Issuance of Share Certificates
The company shall issue share certificates to subscribers once the format is approved by the board.
6. Maintenance of Statutory Records
The subsidiary is responsible for obtaining and maintaining all necessary licenses and registrations from government authorities. These records must be kept up to date as per statutory requirements.
Structures for Setting Up a Wholly Owned Subsidiary in India
Foreign companies can establish a WOS through different structural approaches, each catering to distinct business needs and regulatory requirements.
| Aspect | Structure I – Using NRO Account | Structure II – Direct Foreign Investment | Structure III – Transfer of Indian Company |
|---|---|---|---|
| Initial Capital Subscription | Foreign shareholders subscribe to MOA using funds from NRO account | Foreign shareholders subscribe to MOA using foreign funds | Indian company is incorporated with Indian shareholders; shares are later transferred to foreign shareholders |
| Directors | Minimum 2 directors; at least 1 Indian resident director | Minimum 2 directors; at least 1 Indian resident director | Minimum 2 directors; at least 1 Indian resident director |
| Shareholders | Minimum 2 shareholders; foreign shareholders use NRO funds | Minimum 2 shareholders; foreign shareholders use foreign funds | Minimum 2 Indian shareholders initially |
| Additional Steps | None | None | Indian directors resign; foreign directors appointed; shares transferred to foreign shareholders |
Key Regulatory Considerations
| Particulars | Structure I – NRO Account | Structure II – Direct Foreign Investment | Structure III – Transfer of Indian Company |
|---|---|---|---|
| Repatriation of Funds | Income repatriation limited to USD 1 million per year to NRO account | Freely repatriable | Freely repatriable |
| Apostilled Documents | KYC and company documents (MOA, AOA) must be apostilled and notarized | Same as Structure I | KYC documents of foreign directors must be apostilled and notarized |
| RBI Filings | Not applicable | Form FC-GPR filing required upon incorporation | Form FC-TRS filing on share transfer; Form FC-GPR for additional investment |
| Valuation Report | Not required | Not required | Required for share transfer |
| Approximate Timeline | About 3 weeks (excluding apostille/notarization time) | About 3 weeks (excluding apostille/notarization time) | About 3 weeks plus 2 weeks for transfer (excluding apostille/notarization time) |
Conclusion
Maintaining a Wholly Owned Subsidiary in India requires strict adherence to regulatory compliances, which can be intricate for foreign-headquartered companies. Timely fulfillment of board meetings, auditor appointments, statutory filings, and operational formalities is essential for ensuring lawful and efficient business functioning.
Choosing the right incorporation structure—whether through an NRO account, direct foreign investment, or transfer of shares—plays a pivotal role in aligning with regulatory mandates and business goals.
CertificationsBay offers comprehensive support throughout the entire incorporation and compliance process, helping foreign entities navigate legal requirements seamlessly. By leveraging our expertise, businesses can focus on accelerating growth and establishing a strong foothold in the Indian market with confidence.
FAQs on Setting Up a Wholly Owned Subsidiary (WOS) in India
1. Who can set up a Wholly Owned Subsidiary in India?
Any foreign entity, including companies, partnerships, organizations, and trusts, can establish a WOS in India, subject to compliance with Indian laws and FDI policies.
2. What are the different structures for setting up a WOS?
The three main structures are:
- Using an NRO Account: Suitable for smaller investments; however, repatriation of profits is subject to limits.
- Direct Foreign Investment: Provides full ownership and control but involves detailed regulatory compliance.
- Acquisition of an Existing Indian Company: A quicker entry method but requires thorough due diligence and adherence to legal formalities.
3. What are the key steps involved in incorporating a WOS?
- Obtain Digital Signature Certificates (DSC) for proposed directors
- Apply for name approval with the Ministry of Corporate Affairs (MCA)
- File SPICe+ forms for company registration, PAN, TAN, and GST
- Conduct the first board meeting within 30 days of incorporation
- Appoint an auditor within 30 days of incorporation
- File the Declaration of Commencement of Business (Form INC-20A) within 180 days
- Display mandatory company information at all registered offices and business locations
- Issue share certificates to subscribers
- Obtain necessary licenses and registrations from relevant authorities
- Maintain statutory records and comply with ongoing filing requirements
4. What are the minimum requirements for directors and shareholders of a WOS?
A minimum of two directors is mandatory, with at least one director being an Indian resident. Shareholders can be foreign nationals or entities, with no restriction on residency.
5. What are the repatriation requirements for profits earned by a WOS?
Repatriation rules depend on the investment structure and sector regulations. Limits apply especially if using an NRO account. It is advisable to consult experts to understand applicable repatriation norms.
6. What RBI filings are required for a WOS?
RBI compliance varies depending on foreign investment amount, sector, and type of transaction. Common filings include Form FC-GPR for initial investments and Form FC-TRS for share transfers. Professional guidance is recommended.
7. Are valuation reports or document apostilles required during incorporation?
Valuation reports may be required for share transfers or investments exceeding regulatory thresholds. Foreign documents, including MOA and AOA, must be notarized and apostilled as per Indian legal requirements.
8. What are the pros and cons of each WOS structure?
Each structure has trade-offs regarding cost, time, regulatory burden, control, and repatriation flexibility. A detailed evaluation aligned with business objectives is essential before selection.
9. What ongoing compliance obligations must a WOS fulfill?
A WOS must conduct regular board meetings, file annual returns and financial statements with the RoC, maintain statutory registers, and comply with tax and labor regulations applicable to Indian companies.
10. Where can I find professional assistance for setting up a Wholly Owned Subsidiary in India?
Engaging with qualified legal, corporate, and financial consultants specializing in FDI and company incorporation in India, such as CertificationsBay, can ensure smooth registration and ongoing compliance.
