This article is intended for those companies or startups that have registered their companies outside India and want to operate in India as part of a foreign company. We advise incorporating a company i.e. wholly owned company in India as one of the modes of operating a business in India.
A company can be registered as private limited or public limited. A private limited company is a closely held company and enjoys the privileges given by the Companies Act, 2013. A public limited company is a company where public is interested and it is required to comply with lot of rules and regulations framed by the Companies Act, 2013.
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Let’s take a look at the procedure of incorporating Wholly Owned Subsidiary Private Limited Company with some basic definitions:
What is Wholly Owned Subsidiary Company?
A Wholly Owned Subsidiary company is an entity of which 100 per cent shares are held by another company. For example, if ABC Pvt. Ltd. owns 100 per cent shares of XYZ Pvt. Ltd. Then XYZ Pvt. Ltd. becomes a wholly owned subsidiary company of ABC Pvt. Ltd.
What is Foreign Company?
A company that is incorporated outside India (i.e. in a foreign country) is called Foreign Company. For example ABC Inc. USA.
What is Wholly Owned Subsidiary Company in India by Foreign Company?
When a foreign company makes 100 per cent FDI (Foreign Direct Investment) in India through an automatic route, the Indian company becomes the Wholly Owned Subsidiary Company of that Foreign Company. Let’s say ABC Inc. USA owns 100 per cent shares in XYZ Pvt. Ltd. Then XYZ Pvt. Ltd. becomes the Subsidiary Company.
This is possible where 100 per cent FDI is permitted and no prior approval of Reserve Bank of India is required.
Under automatic route FDI is allowed without the prior approval of Government and Reserve Bank of India. Refer: http://www.rbi.org.in/scripts/FAQView.aspx?Id=26