Setting up Subsidiary Company in India

Setting up Subsidiary Company in India

Any foreign company can incorporate a wholly owned subsidiary company in India. In India, private limited companies are a most popular form of business structure and therefore the most obvious choice of foreign companies. In an Indian private limited company, there can two shareholders and two directors and at least one Director should be resident in India.

100% shareholding of an Indian private limited company can be owned by its foreign holding company and the requirement of having at least two shareholders can be fulfilled by giving one share to the nominee of a foreign company. Wholly owned subsidiary company incorporation process is fast and hassle-free and can be completed online. That means the promoters or their nominee doesn’t have to necessarily fly to India to incorporate a wholly owned subsidiary company.

Foreign Subsidiary will be formed as Private Limited/Public Limited Company and the holding foreign holding company will fund the shareholding. It may be noted that holding company can have 100% to have wholly owned subsidiary including shareholding of nominee shareholders who will be the beneficial shareholder of the company.

The investment limit will be in accordance with the FDI Policy of Government of India, where most of the sectors are under the automatic route.

Requirements for Appointment of Resident Director: As per the requirements of the Companies Act, 2013 every Indian Company should have a Resident Director.

Documents Requirements: Apostle and Notarized Signed Documents are required for foreign Shareholders and Directors. For companies it will be :

Board Resolution duly passed for entering and forming Company in India and in case of Individuals

Passport Copy, Driving Licence and

Current Address proof in the form of Bank Statement is required.

Obtaining Digital Signature of Directors

Obtaining Director Identification Number of Director

Application for Approval of Name of Company, this must be unique Preparation of Incorporation Documents

The signing of Incorporation Documents, this too should be notarized and apostilled Application for Incorporation of Company to Registrar of Companies.

Once this application is approved by registrar we get Certificate of Incorporation along with PAN and TAN (Tax Number in India )

GST Registration: GST Registration is required to be obtained afterward.

GST Council 32nd meeting: Relief to MSMEs & Other Highlights

GST Council 32nd meeting: Relief to MSMEs & Other Highlights

Chaired by finance minister Arun Jaitley, the GST Council concluded its 32nd meeting on Thursday. All the decision that had been taken in this meeting with respect to GST turnover limit and composition scheme changes would be effective from 1st April 2019. In the meeting, the Government took steps to provide compliance relief to Medium and small enterprises (MSMEs) by providing various reliefs and exemptions as discussed in this article.

GST turnover limit hiked

• The government will exempt MSMEs with annual sales of up to Rs40lakh ($56,701) from paying taxes under GST from the earlier Rs20 lakh. For hilly states and North Eastern states, the threshold has been doubled to Rs20 lakh. These states will now be able to choose if they want to keep the GST exemption limit at Rs20 lakh or Rs40 lakh.
• The Council has allowed the state of Kerala to impose a cess of up to 1% on intrastate sales for two years.
• States would have an option to decide about one of the limits within a week’s time as the State’s revenue is also tied to GST. This decision will now lead to various States having different GST threshold limits over time.
• Service providers will have to register for GST once they cross a turnover of Rs.20 lakhs with the exception that Special Category States at Rs 10 lakhs.

GST composition scheme limit

The Government has given a thrust to the GST Composition Scheme with the following three changes:

Increase in Turnover Limit

The limit of Annual Turnover for availing Composition Scheme for Goods has been raised to Rs 1.5 crore at 1% GST rate. Special category States must decide, within one week, about the Composition Limit in their respective States.

Yearly Return

Persons enrolled under the Composition Scheme were earlier required to file GSTR-4 return every quarter. Now to ease the compliance burden, a single annual return with quarterly tax payments has been introduced for the Composition Scheme.

Service Providers Eligible

Service providers who have a turnover of fewer than Rs.50 lakhs are also now made eligible to enroll for the Composition Scheme. These service providers would have to pay GST at the rate of 6% (3% CGST +3% SGST) of turnover. It’s important to note that those enrolled under Composition Scheme are not eligible to claim Input Tax Credit (ITC).

This scheme shall be applicable to both Service Providers and Receivers, who are not eligible for presently available Scheme.

Free Accounting Software

The Government has also decided to provide a free accounting and billing software for small taxpayers to enable easier GST compliance.

GST Cess

Finally, the GST Council approved the levy of Cess on Intra-State Supply of Goods and Services within the State of Kerala at a rate not of not more than 1% for a period not exceeding 2 years. This will be used as revenue mobilization for supporting the natural calamity.

Relief for Real Estate Sector

A seven-member committee has been set up to consider real estate GST rates, on which consensus has not been reached yet to Boost the Residential Segment of the Real Estate Sector.

Certificate of Commencement of Business

The Companies (Amendment) Ordinance 2018

The Ordinance states that a company may not commence business, unless it-

1. files a declaration within 180 days of incorporation, confirming that every subscriber to the Memorandum of the company has paid the value of shares agreed to be taken by him, and
2. files a verification of its registered office address with the Registrar of Companies within 30 days of incorporation. If a company fails to comply with these provisions and is found not to be carrying out any business, the name of the Company may be removed from the Register of Companies.

Commencement of Business under Companies Act, 2013

UPDATE: As per section 11 of Companies Act, 2013, now all newly incorporated Public and Private Companies having Share Capital would be required to obtain a certificate of commencement of business from concerned Registrar of Companies before commencing the business or exercise of borrowing powers

Under Companies Act 2013, the date of incorporation of a company cannot be the date of commencement of business (COB). From the point of commencement of Business, companies may be divided into 2 categories:

3. Public and Private Companies not having Share Capital
   A public company or a private limited company not having share capital are not required to comply with any other formalities and may commence its business activities immediately after obtaining the certificate of incorporation from the concerned Registrar of Companies.
4. Public and Private Companies having Share CapitalAs per of Companies Act, 2013, now all newly incorporated Public and Private Companies having Share Capital would be required to obtain the certificate of commencement of business from concerned Registrar of Companies before commencing the business or exercise of borrowing powers.

Through this article, we discuss the procedure for obtaining the certificate of commencement of Business under Companies Act, 2013

Certificate of Commencement of Business under Companies Act, 2013

Ministry of Corporate affairs has finally get back a very well fine concept which was also available in the erstwhile Companies Act, 1956 i.e. Certificate of Commencement of Business. Now under Section 10A of the Companies Act, 2013, a company cannot commence business or exercise any borrowing powers, unless

1. A company incorporated after the commencement of the Companies (Amendment) Ordinance, 2018 and having a share capital shall not commence any business or exercise any borrowing powers unless—
   12. a declaration is filed by a director within a period of one hundred and eighty days of the date of incorporation of the company in such form and verified in such manner as may be prescribed, with the Registrar that every subscriber to the memorandum has paid the value of the shares agreed to be taken by him on the date of making of such declaration; and the company has filed with the Registrar a verification of its registered office as provided in sub-section (2) of section 12.
   13. the company has filed with the Registrar verification of its registered office as provided in subsection (2) of section 12.
2. Where no declaration has been filed with the Registrar under clause (a) of sub-section (1) within a period of one hundred and eighty days of the date of incorporation of the company and the Registrar has reasonable cause to believe that the company is not carrying on any business or operations, he may, without prejudice to the provisions of sub-section (2), initiate action for the removal of the name of the company from the register of companies under Chapter XVIII.

“23A’ Declaration at the time of commencement of business –

The declaration under section 10A by a director shall be in Form No. lNC-20A and shall be filed as provided in the Companies [Registration Offices and Fees) Rules, 2014 and the contents of the said form shall be verified by a company Secretary or a Chartered Accountant or a Cost Accountant in practice:

Provided that in the case of a company pursuing objects requiring registration or approval from any sectoral regulators such as the Reserve Bank of India, Securities and Exchange Board of India, etc., the registration or approval, as the case may be from such regulator shall also be obtained and attached with the declaration.”.

 Consequences for Not Filing Certificate of Commencement of Business

1. Non-filling of form INC 20A allows Registrar of Companies one additional ground to strike off the name of your Company from its Register.
2. The company shall be liable to a penalty of fifty thousand rupees and every officer who is in default shall be liable to a penalty of one thousand rupees for each day during which such default continues but not exceeding the number of one lakh rupees.
3. On non-filling of form INC 20A ROC may strike off your Company which shall adversely affect all the Sectoral Approval taken after the incorporation by the Company.

Accordingly, the concept of a certificate of commencement of business is another welcome in ease of doing business and run the business in a more legally and a transparent manner.

The Companies (Amendment) Ordinance, 2018

The Companies (Amendment) Ordinance, 2018 was promulgated on November 2, 2018. It amends several provisions in the Companies Act, 2013 relating to penalties, among others.

The objective of the Ordinance

The Ordinance has been formulated in view of the following objectives:

• To facilitate the ease of doing business.
• To enhance the scope of corporate compliance.

Discounted Issue of Shares

The Act prohibits a company from issuing shares at a discount, except in certain cases.  On failure to comply, the company is liable to pay a fine between one lakh rupees and five lakh rupees every officer in default may be punished with imprisonment up to six months or fine between one lakh rupees and five lakh rupees.

The Ordinance changes this to remove imprisonment for officers as a punishment.  Further, the company and every officer in default will be liable to pay a penalty equal to the amount raised by the issue of shares at a discount or five lakh rupees, whichever is lower.  The company will also be liable to refund the money received with interest at 12% per annum from the date of issue of the shares.

Commencement of Business

The Ordinance states that a company may not commence business, unless it-

• files a declaration within 180 days of incorporation, confirming that every subscriber to the Memorandum of the company has paid the value of shares agreed to be taken by him, and
• files a verification of its registered office address with the Registrar of Companies within 30 days of incorporation. If a company fails to comply with these provisions and is found not to be carrying out any business, the name of the Company may be removed from the Register of Companies.

Registration of Charges

The Act requires companies to register charges (such as mortgages) on their property within 30 days of creation of charge.  The Registrar may permit the registration within 300 days of creation.  If the registration is not completed within 300 days, the company is required to seek an extension of time from the central government.

The Ordinance changes this to permit registration of charges:

• within 300 days if the charge is created before the Ordinance, or
• within 60 days if the charge is created after the Ordinance. If the charge under the first category is not registered within 300 days, it must be completed within six months from the date of the Ordinance. If the charge under the second category is not registered within 60 days, the Registrar may grant another 60 days for registration.  If a person willfully furnishes false or incorrect information or suppresses material information which is required to be registered under this provision, he will be liable for fraud under the Act.

Change in approving the authority

Under the Act, change in a period of the financial year for a company associated with a foreign company, has to be approved by the National Company Law Tribunal.  Similarly, any alteration in the incorporation document of a public company which has the effect of converting it to a private company has to be approved by the Tribunal.  Under the Ordinance, these powers have been transferred to the central government.

Beneficial Ownership

If a person holds the beneficial interest of at least 25% shares in a company or exercises significant influence or control over the company, he is required to make a declaration of his interest.

Under the Act, failure to declare this interest is punishable with a fine between one lakh rupees and ten lakh rupees, along with a continuing fine for every day of default.  The Ordinance provides that such person may either be fined or imprisoned for up to one year or both.

Remuneration for independent directors

The Act restricts an independent director from entitlement to stock options.  It further states that he may receive sitting fees, commission, and reimbursement of expenses.  The Ordinance removes this provision.

Disqualification of directorship

Under the Act, a person cannot be a director in more than 20 companies.  The Ordinance provides that contravening this provision will be a ground for disqualification from directorship.

Adjudication of penalties

The Act allows the central government to appoint adjudicating officers to decide penalties under the Act.  The Ordinance states that these officers, in addition to imposing penalties, may direct the defaulting entity to rectify the default.

Compounding

Under the Act, a regional director can compound (settle) offenses with a penalty of up to five lakh rupees.  The Ordinance increases this ceiling to Rs 25 lakh.

Repeat defaulters

Under the Ordinance, if a company, or an officer, or other person commits a default again within three years of the previous case, the entity will be liable to twice the penalty as provided for such default.