All about Foreign Companies operating in India

Post liberalisation, India has experienced over all development of the country but to become a developed country from developing country, it still needs robust social and economic policies. Reserve Bank of India (RBI) regulates the economic policies in India and it has issued guidelines on Foreign Direct Investment in India.

Pursuant to these FDI policies, various foreign companies are investing heavy amount of money in businesses in India to take benefit of cheaper wages, innovative minds and changing business culture of India.

There are various foreign companies in India which are running business in India like “Sony Pictures Releasing of India Limited” is a Branch Office of Foreign Company in India having object as Manufacture of radio, television and communication equipment and apparatus.

Apart from Reserve Bank of India (RBI), Companies Act, 2013 states the provisions for incorporation and working foreign company in India.

In this article we discuss provisions for incorporation and working of Foreign Companies in India.

Foreign Company

Foreign Companies are entities that are incorporated outside India as per the law of their country but to carry business in India they open a Company in India which work as per the discretion of Foreign Company by complying all the applicable Indian laws.

Section 2(42) of Companies Act, 2013 (Act) specifies the definition of Foreign Company as follows:

“Foreign company” means any company or body corporate incorporated outside India which,—

(a) Has a place of business in India whether by itself or through an agent, physically or through electronic mode; and

(b) Conducts any business activity in India in any other manner.

Thus gist of above definition is:

  • Foreign Company is body corporate incorporated outside India
  • It has Place of business in India
  • Place of business can be operated through itself or through Agent
  • It can conduct any business activity in India as permitted by RBI

Foreign Companies as stated above can conduct business in India through:

  1. Liaison office
  2. Branch office
  3. Project office
  4. Representative office
  5. Other office

It is also important to note that as per section 379(2) of the Act, if any Indian Citizen or Indian body corporate, singly or in aggregate holds more than 50 % of Paid up capital of any Foreign Company, such Foreign Company shall also comply provisions of the Act as a Company Incorporated in India.

How to Register Foreign Company in India?

  • As per section 380 of the Act, any Foreign Company which has established its place of business in India will within 30 days of such establishment w file with Registrar an application to register itself as Foreign Company in Form FC-1 with the documents required to be delivered for registration by a foreign company.
  • Application to the Registrar must be supported with RBI approval and any such regulator which is required to operate business in India by Foreign Company.
  • Applicant needs to provide details of one or more person resident in India and authorised to accept on behalf of the foreign company service of process and any notice or other documents required to be served on foreign company.
  • Applicant should also provide details of any subsidiary, holding or associate company of such foreign company to get the complete overview of operations of foreign company in India.

Accounts and Audit of Foreign Company

As per section 381 of the Act, every foreign company is required to maintain books of account (balance sheet and profit and loss account) for every calendar year.

Foreign Company should consider below given points while maintain such accounts:

  1. Every foreign company shall display on the outside of every office or place where it carries on business in India, the name of the company and the country in which it is incorporated, in letters easily legible in English characters, and also in the characters of the language or one of the languages in general use in the locality in which the office or place is situate; Similarly, the same should be printed on letter heads, business letters and any correspondence of Company.
  2. Below given provisions of the Act shall apply mutatis mutandis to a foreign company:
    • Debentures given in section 71
    • Annual Return in section 92
    • Accounts of Company in section 128
    • Provisions of Registration of Charges
    • Provisions of Inspection, Inquiry and Investigation
  3. If any foreign company wishes to offer its securities in Indiathan it can do so by complying provision given in section 387,388,389, 390 of the Act.
  4. If any foreign Company contravenes provision of this Act than it will not affect the validity of contracts, dealing or transaction entered into by the company or its liability to be sued in respect thereof. However, in such case till the date noncompliance exists ,Company shall not be entitled to bring any suit, claim any set-off, make any counter-claim or institute any legal proceeding in respect of any such contract, dealing or transaction.

Fine on Officer:  Not less than Rs. 25,000 which may extend to Rs. 5 lakh & Imprisonment upto term of 6 months.

Please note that above said regulation is given under Companies Act 2013, FDI policy in India is governed by the Reserve Bank of India and Countries willing to open subsidiary in India must follow RBI norms while incorporating subsidiary company.

  1. Financial statement of its Indian business operations should be in accordance with Schedule III i.e. “General Instruction for Preparation of Balance Sheet and Statement of Profit and Loss of a Company” or as near thereto as may be possible for each financial year.
  2. Every foreign company is required to get its account audited by a practicing Chartered Accountant in India.
  3. Company should also prepare below given documents:
    •  Statement of related party transaction
    • Statement of repatriation of profits
    • Statement of transfer of funds which shall, in relation of any fund transfer between place of business of foreign company in India and any other related party of the foreign company outside India including its holding, subsidiary and associate company.
  4. All these documents are required to be submitted to the Registrar within a period of 6 months of the close of the financial year of the foreign company in Form FC-3. If any such document as is mentioned above is not in the English language, there shall be annexed to it a certified translation thereof in the English language.

Does Foreign Company need to file Annual Return?

Every Foreign company shall file annual return in Form FC-4 within a period of 60 days from the closure of Financial Year submitting details of promoters, directors, KMP, shareholders, meetings etc.

Key Note

  1. Every foreign company shall display on the outside of every office or place where it carries on business in India, the name of the company and the country in which it is incorporated, in letters easily legible in English characters, and also in the characters of the language or one of the languages in general use in the locality in which the office or place is situate; Similarly, the same should be printed on letter heads, business letters and any correspondence of Company.
  2. Below given provisions of the Act shall apply mutatis mutandis to a foreign company:
    • Debentures given in section 71
    • Annual Return in section 92
    • Accounts of Company in section 128
    • Provisions of Registration of Charges
    • Provisions of Inspection, Inquiry and Investigation
  3. If any foreign company wishes to offer its securities in Indiathan it can do so by complying provision given in section 387,388,389, 390 of the Act.
  4. If any foreign Company contravenes provision of this Act than it will not affect the validity of contracts, dealing or transaction entered into by the company or its liability to be sued in respect thereof. However, in such case till the date noncompliance exists ,Company shall not be entitled to bring any suit, claim any set-off, make any counter-claim or institute any legal proceeding in respect of any such contract, dealing or transaction.

Summary of Forms

Form Particular Timeline
FC 1 Information to be filed by foreign company for registration Within 30 days of establishment
FC 2 Return of alteration in the documents filed for registration by foreign company Within 30 days of alteration
FC 3 Annual accounts along with the list of all principal places of business in India established by foreign company within a period of 6 months of the close of the financial year
FC 4 Annual Return of a Foreign company Within 60 days of closure of financial year

Punishment for Contravention

If any Foreign Company contravenes provision given in the Act:

Fine on Company: Not less than Rs. 1 lakh which may extend to Rs.3 Lakh

Fine on Officer:  Not less than Rs. 25,000 which may extend to Rs. 5 lakh & Imprisonment upto term of 6 months.

Please note that above said regulation is given under Companies Act 2013, FDI policy in India is governed by the Reserve Bank of India and Countries willing to open subsidiary in India must follow RBI norms while incorporating subsidiary company.

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