India permits foreign companies to establish locally incorporated subsidiaries, including wholly owned subsidiaries in many industries. An Indian subsidiary is a separate legal entity governed principally by the Companies Act 2013, India’s foreign direct investment rules and the Foreign Exchange Management Act 1999.

Although incorporation is now largely electronic, foreign ownership introduces additional requirements relating to investment approval, document legalisation, banking, valuation and regulatory reporting.

1. Choose the appropriate business structure

A foreign parent company will generally establish its Indian operations as a private limited company. This structure provides limited liability, perpetual succession and the ability to employ staff, enter contracts, acquire assets and conduct business in its own name.

A private company ordinarily requires:

• At least two shareholders;
• At least two directors;
• At least one director who has stayed in India for at least 182 days during the relevant financial year; and
• A registered office in India.

The residency requirement is proportionately applied during the first financial year of a newly incorporated company.

A wholly owned subsidiary is possible even though a private company requires two registered shareholders. The foreign parent may hold almost all the shares, with a nominee holding a small number on the parent’s behalf. Appropriate declarations of beneficial ownership must then be filed.

A branch office, liaison office or project office may sometimes be an alternative. However, these structures remain extensions of the foreign company and have narrower permitted activities. A subsidiary is usually more suitable for substantial or continuing Indian operations.

2. Check India’s foreign investment rules

Before commencing incorporation, the parent should establish whether foreign investment is permitted in the subsidiary’s proposed activities.

India allows up to 100% foreign investment under the automatic route in most sectors. Under this route, prior government approval is not required, although post-investment filings remain mandatory. Other industries have foreign ownership caps, special operating conditions or require government approval. These can include defence, telecommunications, financial services, insurance, broadcasting and certain retail activities. Some activities, including lottery businesses, gambling and specified real-estate activities, are prohibited for foreign investment.

The applicable position should be checked against the current sectoral rules and amendments published by India’s Department for Promotion of Industry and Internal Trade. The DPIIT’s foreign direct investment policy page confirms that 100% FDI is permitted under the automatic route in most sectors.

Government approval is also generally required where the investor is incorporated in a country sharing a land border with India, or where the beneficial owner of the investment is situated in or is a citizen of such a country. This rule can apply even where the immediate parent company is incorporated elsewhere, making it important to examine the ultimate ownership structure.

3. Select the name, shareholders and directors

The proposed name must be distinguishable from existing Indian companies and registered trademarks. Where the subsidiary will use the parent’s name or trademark, the parent should provide a resolution or letter authorising its use.

The foreign parent will need to pass a board resolution approving:

• Incorporation of the Indian subsidiary;
• The proposed investment and number of shares;
• The subsidiary’s proposed name;
• The nominated directors; and
• An individual authorised to sign the incorporation documents.

Each proposed director requires a Director Identification Number, or DIN. New DINs can generally be requested through the incorporation application. The directors and persons signing electronic forms will also require Indian-recognised Digital Signature Certificates.

At least one director must meet the Indian residency requirement. The resident director does not necessarily need to be an Indian citizen, but must satisfy the statutory physical-presence test.

4. Prepare and legalise the documents

Documents commonly required from the foreign parent include:

• Certificate of incorporation or equivalent registration document;
• Constitutional documents;
• Registered office evidence;
• Board resolution approving the Indian subsidiary;
• Authorisation of the person signing for the parent;
• Ownership and ultimate beneficial-owner information; and
• Passport and address evidence for foreign directors and authorised representatives.

Foreign corporate documents and signatures will normally require notarisation and, where the country is a party to the Hague Apostille Convention, an apostille. Documents from other countries may require authentication through the relevant diplomatic or consular process. Documents not written in English should be accompanied by a certified translation.

India’s official investment agency notes that documents signed by foreign directors and foreign subscribers require notarisation and apostilling: Invest India incorporation FAQ.

5. File the incorporation application

The incorporation is submitted electronically to the Ministry of Corporate Affairs through the SPICe+ system.

SPICe+ Part A deals with name reservation, while Part B contains the incorporation application. Associated filings include the memorandum of association, articles of association, director declarations and AGILE-PRO-S.

The integrated application can facilitate:

• Incorporation and allocation of the Corporate Identity Number;
• Director Identification Numbers for eligible proposed directors;
• Permanent Account Number;
• Tax Deduction and Collection Account Number;
• Goods and Services Tax registration, where requested;
• Employees’ Provident Fund and Employees’ State Insurance registrations;
• Professional tax registration in participating states; and
• Opening of the company’s bank account.

Where an overseas corporate body is an initial subscriber, signed and apostilled copies of the memorandum and articles may need to be attached rather than filed solely in electronic form.

Following approval, the Registrar of Companies issues the certificate of incorporation. The company must then maintain its registered office, statutory registers, corporate records and required display information.

6. Open the bank account and introduce capital

The subsidiary must open an Indian bank account with an authorised dealer bank. The parent should remit the share subscription money through recognised banking channels, clearly identifying the payment as an equity investment.

The number, price and type of shares must comply with India’s foreign investment pricing rules. Shares issued by an unlisted Indian company to a non-resident generally cannot be issued below the value determined under an internationally accepted arm’s-length valuation methodology.

Under the RBI’s current Master Direction on Foreign Investment in India, equity instruments must normally be issued within 60 days after receiving the consideration. If they are not issued, the money generally must be refunded within the following 15 days.

The company must file Form FC-GPR through the RBI’s FIRMS portal within 30 days after issuing the shares. Supporting documents commonly include a valuation certificate, company secretary’s certificate, remittance evidence and bank know-your-customer documentation.

7. Complete post-incorporation registrations

Depending on its activities, the subsidiary may also require:

• GST registration;
• State shops and establishments registration;
• Importer Exporter Code;
• Employment and payroll registrations;
• Industry-specific licences;
• Local municipal or environmental approvals; and
• Intellectual-property registrations.

The company should also obtain and maintain tax registrations, appoint its first auditor, issue share certificates, pay applicable stamp duty and hold the required board and shareholder meetings.

8. Maintain ongoing compliance

An Indian subsidiary must file annual financial statements and annual returns with the Registrar of Companies, maintain accounting records and undergo a statutory audit irrespective of its size.

A company with outstanding foreign investment must generally submit an annual Foreign Liabilities and Assets return to the RBI by 15 July. The RBI’s FLA guidance states that failure to file may constitute a FEMA violation.

The subsidiary may also need to file significant beneficial-owner disclosures where an individual indirectly holds or controls the prescribed interest through the foreign parent. Transactions with the parent—including service fees, loans, royalties and the purchase or sale of goods—must comply with Indian transfer-pricing, withholding-tax and foreign-exchange rules.

Setting up an Indian subsidiary is therefore more than an incorporation exercise. The most reliable approach is to coordinate an Indian company secretary, chartered accountant, legal adviser and authorised dealer bank from the outset. Early examination of the FDI route, ownership structure and legalisation requirements can prevent delays and ensure the subsidiary begins operations on a compliant foundation.

This article provides general information and does not constitute Indian legal, tax or foreign-investment advice. Requirements should be confirmed for the proposed industry, ownership chain and state of operation before incorporation.