FOREIGN COMPANY ESTABLISHMENT AND COMPLIANCES UNDER COMPANIES ACT 2013

FOREIGN COMPANY ESTABLISHMENT AND COMPLIANCES UNDER COMPANIES ACT 2013

As Per Section 2 (42)

Foreign company is a 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)    conduct any business activity in India in any other manner

Simple definition give understanding that even a company incorporated outside India, has simple electronic present, which may be used for business in India is a foreign company

Note:

# Share transfer or share registration office will be treated as a ‘place of businesses.

# It was held that ‘established place of business’ means a permanent and specific location from where business is carried on regularly. If foreign company had no established place of business at the time of signing the contract, the company is not governed by restriction under Act.

Mere appointment of constituted attorney for purpose of signing contract does not mean that foreign Company has established business in India.

      Legal forms in which a foreign company can set up its establishment in India?

Ø  Branch Office

Ø  Liaison Office

Ø  Project Office

Ø  Corporate Entity which could be wholly or partly owned by the foreign company (FIPB route).

Ø  Joint Venture/ Partnerships etc.

For Establishment of office of foreign Company in India. We have to follow provisions of two Acts:

1.      RBI Act- (Already discussed in detailed in my earlier article)

2.      Companies Act, 2013

COMPANIES ACT:

PROCEDURE AFTER GETTING THE RBI APPROVAL:

Every Foreign Company registered with RBI shall get itself registered with the Ministry of Corporate Affairs; it is a registration of foreign company in India. On such registration a CIN i.e. Corporate Identity Number is allotted by the Registrar of Companies.

A foreign Company established a place of business in India should submit following documents shall be filled with the Registrar of Companies for registration within 30 days of establishment of place of business in India in form FC-1:-

1. Certified copy of Charter, statutes or memorandum and articles of association or other Instrument constituting or defining the constitution of the company. If it is not in English language, its certified translation should also be submitted.
2. Approval letter from Reserve Bank of India for the setting up of business in India is to be attached. (It is mandatory to attach attested copy of such approval)

     iii.   List of directors and secretary of the foreign company (Mandatory). Details should contain present and former name & surname, his usual residential address, nationality, business occupation etc. [“ Director”, in relation to a foreign company, includes any person in accordance with whose directions or instructions the Board of Directors of the company is accustomed to act. Section 389(b)]

     iv. Name and address or names and addresses of one or more person/s resident in India, authorized to accept service, process, notice or any other document in India on behalf of the Foreign Company.

       v.    Power of attorney or board resolution in favour of the authorized representatives is to be attached.

     vi.     Full address of the office of the company in India which is deemed to be its principal place o business in India.

   vii.  Particular of opening and closing of a place of business in India on earlier occasion or occasions; if any.

 viii.     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;

     ix.            Attested copy of approval of other regulators, if any.

       x.  Any other information as may be prescribed (particulars about directors and secretary as specified in Rule 3 of Companies (Registration of Foreign Companies) Rules, 2014.

Relevant registrar:

Relevant registrar for foreign companies is Registrar of Companies of NCT of Delhi & Haryana.

Digitally Signature of Form:

The form will be digitally signed by the authorized representative of the foreign company

Certification of documents:

Certifications of any charter, statute, memorandum and articles shall be duly certified as true copy by notary or officer as specified in rule 9 of Companies (Registration of Foreign Companies) Rules, 2014.

Authentication of translated document:

Translated document shall be authenticated as specified in rule 10 of Companies (Registration of Foreign Companies) Rules, 2014

After completion of above mentioned compliances ROC will issue Corporate Identification No. to Foreign Company.

OPTIONAL COMPLIANCE:

ALTERATION/ CHANGE IN INFORMATIONS:

If there is any alteration in below mentioned details, i.e. (as given below) a return should be filed with Registrar of Companies Section 380(3). The alteration is required to be filed in form FC-2.

·         Memorandum, registered office, director, secretary, representative in India or principal place of business in India.

·         If foreign Company ceases to have office in India, that fact should also be informed.

Form FC-2:

Attachments into Form FC-2:

·         Certified true copy of Resolution.

·         Copy of approval letter (it is mandatory if any approval is required for such alteration).

·         Translated version of the documents in English (in case documents attached are not in English).

·         Particulars of alterations in the place of business in India of the company, If change.

·         Particulars of alteration in details of the directors or secretaries, If change.

·         Particulars of alterations in details of the company authorized representative, If change.

REGULAR COMPLIANCE:

A.    FINANCIAL STATEMENT:

Section 381 of the Companies Act, 2013 and Rule 4, 5 and 6 of Companies (Registration of Foreign Companies) Rules, 2014.

Every foreign company shall, in every calendar year, Make out a balance sheet and profit and loss account. Copy of balance sheet and P&L account should be filed with ROC along with English translation and list of place of business established by the foreign company in India- Section 381(1) in form FC-3.

v  As per Rule 4(1) every foreign company shall prepare financial statement of its Indian business operations in accordance with Schedule III.

v  These should be submitted with consolidated financial statement of foreign Company.

v  If such documents are not in English language, there shall be annexed to it a certified translation thereof in the English language.

v  Statement of Related party transaction.

v  Statement of Repatriation of profits.

v  Statement of transfer of funds (including dividends if any) 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.

Audit of Financial Statement:

Audit of Accounts of Foreign Company shall be conducted by practicing Chartered Accountant (CA) or firm of Chartered Accountant- Rule-5 of Companies (Registration of Foreign Companies) Rules, 204.

B.      ANNUAL RETURN BY FOREIGN COMPANY:

Annual return shall be submitted within 60 days of close of financial year in form FC-4 with fees. Rules- 7 of Companies (Registration of Foreign companies) Rules, 2014.

Purpose of the e-Form

Every foreign company shall prepare and file annual return of the company in e-Form FC-4 within 60 days from the close of financial year.

Form- FC-4 will be file with following attachments:

         i.            Details of Promoters, Directors and Key managerial personnel and changes therein since close of previous financial year. (Mandatory)

       ii.            Details of directors and key managerial personnel and their remuneration. (Mandatory)

     iii.            Details of the meeting of the members or class thereof, board and its various committees along with attendance details. (Mandatory).

     iv.            Particulars of members and debenture holders along with changes therein since the close of previous financial year. (Mandatory).

       v.            Particulars of Holding, subsidiary and associate companies and firms. (Mandatory in case number of entities prescribed at serial no 6 is more than seven)

     vi.            Particulars of Holding, subsidiary and associate companies and firms. (Mandatory in case number of entities prescribed at serial no 6 is more than seven)

   vii.            Any other information can be provided as an optional attachment(s).

C.      INDICATING AND DISPLAYING DETAILS OF THE COMPANY:

v  Foreign Company should conspicuously exhibit outside of every director place of business in India, in English or regional language of the Locality its name and the country in which it’s incorporated.

v  All its business letters, bill-heads, notices and other official publications should indicate name and country of incorporation in English.

v  If liability of members is limited, it should be indicated in prospectus, letter heads, bill heads, notices etc. This fact should also be exhibited outside every office. Section 382.

D.     SERVING OF NOTICE OF FOREIGN COMAPNY:

v  A notice to foreign company shall be deemed to be sufficiently served if addressed to the person in India whose name has been filed with ROC.

v  The notice may be hand delivered or sent by post or by electronic mode. Section 383.

E.       PUNISHMENT FOR NON COMPLIANCE:

v  Punishment for non compliances with provisions in respect of delivery of documents to ROC, return, accounts, prospectus, IDR etc. is with fine which shall not be less then Rs. 1,00,000/- but can extend upto Rs. 3,00,000/- and in case of continuous offence additional fine of Rs. 50,000 per day.

v  Further every officer of foreign company who is in default is punishable with fine plus imprisonment- Section 392

CERTAIN PROVISIONS APPLICABLE TO FOREIGN COMPANY:

As per Section 384 of Companies Act, 2013, Following provisions are applicable to foreign company as are applicable to Indian Company.

      Corporate Social Responsibility (CSR):

The provisions of CSR are applicable to Foreign Company having branch office or project in India if it fulfils criteria of ‘Net Profit’ or ‘Turnover’.

The criteria of Net Profit etc. apply only to business operations in India in case of foreign Company/ Project Office.

      SECTION 71:-  (Debentures)

The provisions of Sec 71 of Companies Act, 2013 shall apply mutatis mutandis to a foreign Company. [This section relates to issue, redemption etc. of Debentures].

      SECTION 92:-  (Annual Return)

The provisions of Sec 92 of Companies Act, 2013, shall subject to such exceptions, modifications and adaptations as may be made therein by rules made under this Act, apply to a foreign company as they apply to a company incorporated in India.

      SECTION 128:-  (Books of Account)

The provisions of Section 128 of Companies Act, 2013, shall apply to a foreign company to the extent to requiring it to keep at its principal place of business in India, the books of account referred to in that section, with respect to monies received and spent, sales and purchases made and assets and liabilities, in the course of or in relation to its in India.

      SECTION 77-87:-  (Charge)

The provisions of Chapter VI of the 2013 Act shall apply mutatis mutandis to charges on properties which are created or acquired by any foreign Company.

The charges are to be filed electronically in e-form. Satisfaction of charge is to be filed in e-form.

      SECTION 206-229:-  (Inspection, Inquiry and Investigation)

The provisions of Chapter XIV of the 2013 Act shall apply mutatis mutandis to the Indian business of a foreign Company as they apply to a company incorporated in India. The provisions of Inspection and investigation apply to foreign Company also.

LIMITATION ON FOREIGN COMPANY:

Restrictions under FEMA:

A foreign company has to adhere to restrictions regarding conduction business, ownership of property etc. as prescribed by RBI under FEMA.

Fundamental rights available to citizen not available:

Foreign Companies don’t have fundamental right guaranteed under Article 19(1)(f) of Constitution of India..

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(Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com)

Disclaimer: This Document is a copyright of Divesh Goyal. The entire contents of this document have been developed on the basis of relevant statutory provisions. Thought the author has made utmost efforts to provide authentic information however, the author expressly disclaim all and any liability to any person who has read this document, or otherwise, in respect of anything, and of consequences of anything done, or omitted to be done by any such person in reliance upon the contents of this documents.  This is only a knowledge sharing initiative and author does not intend to solicit any business or profession…