Regulatory Framework for Foreign Companies Under the Companies Act 2013

The Indian government has taken major steps to improve the country's investment climate, resulting in a spectacular rise in the World Bank's Ease of Doing Business ranking from 142nd in 2014 to 63rd in 2022, as recorded in the World Bank's Business Report 2022. In addition, India has one of the most extensive tax treaty networks in the world, as well as flexible rules governing foreign direct investment (FDI). This article goes into the requirements outlined in Chapter XXII of the businesses Act of 2013, which govern the establishment and initiation of operations by foreign businesses in India. We will discuss important topics such as registration, financial disclosure, authorized representatives, business social responsibility, and other relevant issues.

Section 2(42) defines a "foreign company" as a company formed outside India that has a physical or electronic presence in India and engages in business activities there. To be classified a foreign company in India, a company must meet three criteria. Specifically, the company must:

1. Have been incorporated outside of India.

2. Have a company location in India.

3. Carry out business activities in India.

Rule 2(1)(c) of the Companies (Registration of Foreign Companies) Rules, 2014 specifies "electronic mode" in accordance with Section 2(42) of the Act. Electronic mode denotes carrying out electronically based or digitally based activities.

(i) B2B and B2C transactions, data interchange, and other digital supply transactions;

(ii) offering to accept deposits, inviting deposits, or receiving deposits or subscriptions to securities in India or from Indian citizens;

(iii) financial settlements, web-based marketing, advisory and transactional services, database services and products, and supply chain management.

(iv) internet services, including telemarketing, telecommuting, telemedicine, education, and information research;

(v) all associated data communication services,

Whether by email, mobile devices, social media, cloud computing, document management, voice or data transmission, or other means. The server's location can be inside or outside of India.

Electronic method does not include the electronic offering, subscription, or listing of securities in the International Financial Services Centres established under Section 18 of the Special Economic Zones Act of 2005.

Certain international firms that do business in India are treated as if they were incorporated in India. Specified foreign firms are those in which at least 50% of the paid-up share capital is held, either individually or collectively, by one or more Indian citizens, one or more Indian-incorporated corporations, or a combination of the two. Paid-up capital might take the form of equity shares, preference shares, or a combination of the two. Such foreign corporations must also comply with Chapter XXII and any other provisions of this Act that may be specified for the business they do in India.

Required Documents for Foreign Company Registration in India

According to Section 380, any foreign company seeking registration must submit the following documents in English to the Registrar with jurisdiction over New Delhi within 30 days of establishing its place of business in India, in Form No. FC-1, along with the requisite fee.

(a) a certified copy of the company's charter, laws, memorandum, and articles, or any other item that constitutes or defines the company's constitution.

(b) the entire address of the company's registered or primary office.

(c) a list of the company's directors and secretaries, including such particulars as may be prescribed;

(d) the name and address, or the names and addresses of one or more people living in India authorized to receive service of process and any notifications or other documents necessary to be served on the company.

(e) the entire address of the company's office in India, which is considered its major place of business in India;

(f) details of the opening and closing of a place of business in India on a previous occasion or occasions;

(g) a declaration that none of the company's directors or the authorized representative in India has ever been convicted or disqualified from forming or managing corporations in India or overseas;

(h) an attested copy of RBI's approval under the Foreign Exchange Management Act, 1999 or Regulations, as well as from other regulators, if necessary, for the establishment of a place of business in India, or a declaration from the authorized representative of such foreign company that no such approval is required; and

(i) any additional information as may be required.

If any changes are made to the above-mentioned documents, they must be submitted to the registrar within 30 days using Form No. FC-2, together with the specified registration fee.

Accounts of Foreign Companies

According to section 381 read with the Companies (Registration of Foreign Companies) Rules, 2014, every foreign firm within a period of 6 months from the end of every financial year shall file in Form No. FC-3 with the registrar the following documents:

(1) A financial statement for its Indian commercial activities produced in accordance with schedule III,

(2) The most recent consolidated financial statements of the parent foreign company in English.

(3) Statement on Related Party Transaction,

(4) Statement of repatriation of profits

(5) A statement of fund transfers (including any dividends), and

(6) A list of all foreign companies' business locations in India as of the balance sheet date.

The Registrar may extend the six-month period by no more than three months. It is crucial to note that a foreign corporation having a business presence in India may not necessarily follow a March 31st fiscal year, as long as it has received the relevant approvals from the central government.

Annual Return of Foreign Company

Every foreign firm must file its annual return, Form No. FC-4, with the registrar within 60 days after the end of its fiscal year. Section 92 requires that the return include the information contained therein.

Corporate Social Responsibility of Foreign Companies

In each fiscal year, every foreign corporation must spend 2% of its average net profit from the previous three fiscal years on the activities listed in Schedule VII. Noncompliance with CSR rules can result in penalties. Such spending shall be undertaken only when the foreign corporation has, in the immediately prior fiscal year

Net worth: >= ₹500 crores

Turnover ≥ ₹1000 crores or

Net profit ≥ ₹5000 crores.

Display the name and other information of a foreign company.

The foreign company's name and country of incorporation must be publicly posted on the outside of every office or place where it conducts business in India, in both English and the vernacular language of that office or place, in plainly legible letters. The same must also be expressed in English characters on all business letters, billheads, and letter paper, as well as notices and other official publications of the company.

Where a foreign company's member has limited liability, this must be stated in every prospectus issued, as well as in all business letters, billheads, letter paper, notices, advertisements, and other official publications of the company, and prominently displayed on the outside of every office or place where it does business in India.

Service of Notice on Foreign Company

Any document or notification required to be served on a foreign corporation must be served to the person in India authorized to accept it on its behalf. The service may be provided in person or electronically.

Punishment for Contravention by a Foreign Company

A foreign corporation that fails to comply with the provisions of Chapter XXII will face the following consequences:

(1) Foreign companies in default face fines ranging from ₹1.00 lakh to ₹3.00 lakhs, with an additional fee of ₹50,000 for each day of default.

(2) Officers of defaulting international companies may face fines ranging from ₹25,000 to ₹5.00 lakh.