A foreign company can set up its operations in India by forming a wholly owned subsidiary in India in sectors where 100% FDI is permitted under the automatic route or where approval from the FIPB has been obtained for such investment.A wholly owned subsidiary can be set up as a:
A private limited company is a company limited by shares having a minimum of 2 and not more than 50 shareholders. A private company needs to have a minimum paid-up share capital of Rs.1lac. It cannot make invitation to the public for subscription of shares or debentures and cannot make or accept deposits from public. Moreover, by virtue of its article of association, there is restriction on the free transferability of shares. The liability of each shareholder is limited to the extent of the unpaid amount of the face value of share and the premium thereon in respect of the shares held by him. However, the liability of a director/manager of such private company at times can be unlimited.
A public limited company is defined to mean a company that is not a private company and which has a minimum paid up share capital of Rs. 5 lakh or more. The restrictions that are statutorily applicable on a private company do not apply to a public company. Therefore, the shares of a public company are freely transferable and there is no restriction on the maximum number of shareholders that it may have. A public company can also accept deposits from public as opposed to a private company. As per Companies Act, 1956, even a private company that is a subsidiary of a public company falls within the definition of a public company. This means that a private company which is a subsidiary of a public company will be required to comply with almost all provisions of the Companies Act that apply to a public company. However, the basic characteristics of a private company provided under Companies Act such as restrictions on transferability of shares, minimum paid up capital, etc. do not change by virtue of it being a subsidiary of a public company.
Other than the approval that may be required to be obtained from the FIPB in case of regulated sectors, the procedure for setting up of a subsidiary is same as that of any other private or public limited company.
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