Companies Incorporated Outside India (A Brief Overview) by A. K Companies Incorporated Outside India (A Brief Overview) by A. K. KUCHHAL Managing Partner IndiaCorp Law Corporate Consultants and Advocates In Association with M/s A. K. Kuchhal & Co. Company Secretaries

Foreign Companies Companies Act, 2013

PROVISIONS UNDER WHICH FOREIGN COMPANY IS COVERED UNDER CA 2013 Act Rules Chapter 22 (Companies Incorporated outside India) of Companies Act, 2013 Companies (Registration of Foreign Companies) Rules, 2014

Foreign Company - What it is ?

Definition - [sec-2(42)] Foreign Company means any Company or body corporate incorporated outside India which- Has a place of business in India whether by itself or through an agent, physically or through electronic mode; and Conducts any business activity in India in any other manner.

ENTRY GATEWAYS TO FOREIGN COMPANIES As an incorporated entity Joint Venture Wholly Owned Subsidiary As an unincorporated entity Branch Office Project Office Liaison Office

BRANCH Office Foreign companies engaged in manufacturing and trading activities abroad are allowed to set up Branch Offices in India for specified purposes Branch Offices are established with the approval of RBI Permitted to remit outside India profit of the branch No approval required from RBI for a company to establish a branch/unit in SEZs to undertake manufacturing and service activities

BRANCH Office – Permitted Activities 1. Export/import of goods. 2. Rendering professional or consultancy services. 3. Carrying out research work, in areas in which the parent company is engaged. 4. Promoting technical or financial collaborations between Indian companies and parent or overseas group company. 5. Representing the parent company in India and acting as buying/ selling agent in India. 6. Rendering services in Information Technology and development of software in India. 7. Rendering technical support to the products supplied by parent/group companies. 8. Foreign airline/shipping company.

BRANCH Office – Permitted Activities Retail trading activities of any nature is not allowed for a Branch Office in India. A Branch Office is not allowed to carry out manufacturing or processing activities in India, directly or indirectly.

LIAISON OFFICE Liaison office not permitted to undertake any commercial/trading/industrial activity The role of the liaison office is limited to collecting information about possible market opportunities and providing information about the company and its products to prospective Indian customers and acting as a communication channel between the parent company and Indian Companies. It can promote export/import from/to India and also facilitate technical/financial collaboration between parent company/Group companies and companies in India Approval for establishing a liaison office in India is granted by RBI

LIAISON OFFICE – Permitted Activities Representing in India the parent company / group companies. Promoting export / import from / to India. Promoting technical/ financial collaborations between parent / group companies and companies in India. Acting as a communication channel between the parent company and Indian companies. - Will not undertake any business activities, Sale/ Purchase.

PROJECT OFFICE General permission to foreign entities to establish Project / Site Offices (temporary in nature) Such offices cannot undertake or carry on any activity other than the activity relating and incidental to execution of the project General permission also for remitting surplus funds after completion of project on production of the following documents: Certified copy of the final audited project accounts; A Chartered Accountant’s certificate showing the manner of arriving at the remittable surplus;

Income tax assessment order or other documentary evidence showing payment of income-tax and other applicable taxes, or a chartered accountant’s certificate stating that sufficient funds have been set aside for meeting all Indian Tax liabilities; Auditor’s certificate stating that no statutory liabilities in respect of the Project are outstanding.

PROCEDURE FOR SETTING UP OF BO/ LO As per Regulation 3, a Branch / Project/ Liaison Office can be set up only with the prior permission of RBI. RBI Route - Where principal business of the foreign entity falls - 100 per cent FDI Sectoral Cap. Government Route - Where principal business of the foreign entity falls - where 100 per cent FDI is not permissible under the automatic route. Applications from entities falling under this category and those from NGO’s / NPO’s / Government Bodies / Departments are considered by the Reserve Bank in consultation with the Ministry of Finance, Government of India.

PROCEDURE FOR SETTING UP OF BO/ LO The application has to be made in form FNC - 1 and submitted along with the following documents: Copies of last Five years (For LO 3 Years) audited Balance Sheet, Profit & Loss Account of the PC. Profit Track Record For BO — Five Years For LO — Three Years

PROCEDURE FOR SETTING UP OF BO/ LO……………. Cotd.. Net Worth - For BO — not less than USD 100,000 or its equivalent. - For LO — not less than USD 50,000 or its equivalent. Translated English version of the Company’s Certificate of Incorporation/Registration, Memorandum & Articles of Association English version of the Copy of the Board resolution for opening office in India.

All the documents are required in duplicate. Reasons for opening office in India like business transacted, details of customers, vendors etc. Company’s profile with brief history, product details, group companies etc. Special Power of Attorney in favor of a local representative duly notarized For obtaining approval from RBI and to register with the Registrar of Companies, the following documents are required for opening a branch in India: A copy of Board Resolution for opening Branches in India. (Notary and consulate by Indian embassy) A copy of Certificate of incorporation of your company abroad A copy of Memorandum of the company. List of Directors/Key Persons of the company List of Branches in other countries if any Brief profile of the business activity Proposed address of the branch in India. All the documents are required in duplicate.

They do not need to maintain any reserves in India. Certain specific information that needs to be furnished in this application include – Global history of operations of the company. Proposal of activities and interest areas in India. Reasons for opening office. For exchange issues. The branch offices set up by the foreign companies in India are allowed to carry out the payment issues outside India under the regulations of RBI. They do not need to maintain any reserves in India. In cases of possessing income or profits in India, the branch offices can send back profits directly to their Head Office, which is located in the foreign country, and they do not need any prior approval from RBI for that.

APPLICATION OF ACT TO FOREIGN COMPANIES - Sec 379 Whereas equal to or more than 50% of the paid up share capital (whether equity or preference) of a Foreign Company is held whether singly or in the aggregate by : -one or more citizens of India -one or more companies or bodies corporate incorporated in India Such foreign company shall need to comply with the provisions of chapter 22 (Companies Incorporated outside India) of Companies Act, 2013 In addition of above also need to comply with the provisions of Companies Act, 2013 as may be prescribed with regard to business carried on by it in India as if it were incorporated in India

STATUTORY COMPLIANCES FOR FOREIGN COMPANIES

COMPLIANCES AT THE TIME OF REGISTRATION Foreign company shall deliver following docs within 30 days from the date of establishment of place of business in India for registration with Registrar in form FC-1*:- *Such application shall be supported with an attested copy of approval from Reserve Bank of India (RBI) under FEMA Act or Regulations and also from other regulators, if required. certified copy of the charter, statutes/ memorandum / articles of the company in English language. The full address of the registered or principal office. A detailed list of the directors and secretary of the company. the name(s) and address (s) of one or more persons resident in India – who will act as Authorized Representative of the Company.

COMPLIANCES AT THE TIME OF REGISTRATION ……...(CONT.) the full address of the office in India particulars of opening and closing of a place of business in India on earlier occasion or occasions; declaration that none of the directors of the company or the authorized representative in India has ever been convicted or debarred from formation of companies and management in India or abroad; and Any other information as may be prescribed Note :- Any document which any foreign company is required to deliver to Registrar shall be delivered to Registrar having jurisdiction over New Delhi and fees for registration of documents is Rs. 6000

COMPLIANCES – post registration The accounts of foreign companies are to be delivered to the Registrar within 6 months from the end of the financial year and it shall includes: Balance Sheet and Profit & Loss Account as per Schedule III of the Act Documents to be annexed as per the provisions of Chapter IX (Accounts of Companies) of the Act, 2013 Statement of related party transactions Statement of repatriation of profit

COMPLIANCES – post registration ….(cont.) Statement of transfer of fund between place of business of foreign company in India and other related party of foreign company outside India List of places of business in form FC-3 established by the foreign company in India as on the date of balance sheet

COMPLIANCES – post registration ….(cont.) If any alteration made or occurs in documents that were delivered to Registrar the company shall file a return of such alteration with Registrar in form FC-2 within 30 days of such change or alteration. Documents required to be filed with Registrar in case of alterations in documents (sec- 380)

COMPLIANCES – post registration ….(cont.) Display of name of foreign company [sec-382] Every Foreign Company shall- Exhibit 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 language in general use in the locality in which the office or place is situate; Outside of every office or place where it carries on business in India, All business letters, bill-heads, notices, and official publications of the Company.

COMPLIANCES – post registration ….(cont.) Display of name of foreign company [sec-382] If the liability of members of the Company is limited, cause notice of that fact- To be stated in every such prospectus issued, in all business letters, bill heads, official publications, in legible English characters; To be exhibited on the outside of every office or place where it carries on business in India.

COMPLIANCES – post registration ….(cont.) Filing of Annual Return [sec-384] Every Foreign Company shall prepare and file an Annual Return in form FC-4 to registrar within 60 days from the last day of its financial year. Following provisions of the Act are applicable to foreign companies also: [sec-384] •Section 71 regarding issue of debentures; •Section 128 regarding books of accounts to be kept by the company; •Chapter VI regarding registration of charges created by the company; •Chapter XI regarding inspection and investigation with regards to the business carried on in India

STATUTORY COMPLIANCES FOR FOREIGN COMPANIES ….(cont.) If any foreign company cease to have a place of business in India it shall require to file a notice of the fact to Registrar and As from the date on which notice is so given the obligation of the company to deliver documents with Registrar shall cease Documents required to be filed with Registrar when foreign company ceases to have a place of business in India (Rule -8)

Service on Foreign Company – Sec 383 Any document required to be served on a Foreign Company shall be deemed to be sufficiently served, if addressed to any person whose name and address have been delivered to registrar under Section 380 and left at, or sent by post to, the address which has been so delivered to the Registrar or by electronic mode.

Companies Failure to comply with provisions of this chapter not to affect validity of contracts – Sec 393 Any Failure by a company to comply with the provisions of this chapter shall not affect the validity of any contract, dealing or transaction entered into by the Company or its liability to be sued in respect thereof But the 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, until the company has complied with the provisions of this Act applicable to it. Plus : Applicable provisions wrt Penalties and Prosecutions

Compliance issues for Indian companies incorporated abroad The new Companies Act has widened the regulations for foreign companies controlled by Indian corporate, putting the latter under increased pressure of compliance….. Foreign companies / companies incorporated outside India had always had some provisions of the Companies Act, 1956 (Old Act) being applicable to them under part XI of the Old Act. Such foreign companies which would have established a place of business in India before or after the commencement of the Old Act had to comply with some of the provisions of Old Act which included submitting with the registrar charter documents of the place of business in India, its address, details of directors etc for registration, accounts of the Indian entity, details of charges made on property in India and so on. 

Changed position under Act, 2013 The new Act, 2013, expanded its scope of such foreign companies and has increased the compliance requirements as well. Chapter XXII of the New Act, Section 379 onwards provides for provisions of the Act as applicable to such foreign companies in which Indian individuals or body corporates jointly/ severally hold not less than 50% of the paid-up share capital either in the form of equity or preference and have a place of business in India. At first blush the provisions of the Old Act and the New Act seem similar, but on a little careful reading one would understand the change in the scope of coverage of such foreign companies. 

Changed position under Act, 2013 Sec 379 – Application of Act to Foreign Companies Sec 2 (42) – Foreign Company Rule 2 (1) (c) – Electronic Mode A joint reading of these sections brings to the fore that earlier only if the foreign companies owned by Indians had a physical presence in India, the provisions of the chapter were to apply.  But now ???

impact of the change under Act, 2013 ? With the New Act, the need for physical presence has been done away with, as entities with no physical presence yet having any virtual presence would also now come under the net.

Compliances to be made by such companies Under the New Act apart from the compliances under the Old Act now the foreign companies will also have to comply with the Provisions of Section 71 as applicable to debenture issuances. Annual returns with the Registrar in India u/s 92 of the New Act. Also the Old Act required the foreign companies to provide for details of charges created on property in India, under the New Act any charge created by such foreign company will have to be registered with the Registrar of Companies. 

Compliances to be made by such companies………….. File a statement with regard to related party transactions, repatriation of profits, transfer of funds including dividends from the place of business in India and any other related party of the foreign company outside India. The foreign company will also have to get its accounts audited by a practicing Chartered Accountant in India and the chapter of audit and auditors including rotation of auditors will apply.

PENAL PROVISIONS If a foreign company contravenes any of the provisions of Chapter 22 then it shall be :- punishable with fine of not be less than Rs. 1 lakh but which may extend to Rs. 3 lakh and in the case of a continuing offence additional fee of Rs. 50,000 till the default continues punishable with imprisonment for a term which may extend to 6 months or with fine which shall not be less than Rs. 25,000 but which may extend to Rs. 5 lakh, or with both Every officer of the foreign company who is in default shall be

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