Post Incorporation Compliance Checklist for Foreign Companies in India

Introduction

Setting up a wholly owned subsidiary company in India can be a beneficial option for foreign companies. However, it is important to understand that there are various different and complex set of rules and regulations in India and compliance with various post-incorporation procedures is important to ensure smooth operations without any disruptions.

In this blog we outlines the most important compliance processes that foreign companies must consider after incorporating a wholly owned subsidiary or private limited company in India.

Initial Steps after Incorporation

1. Opening a Bank Account

First thing after incorporation of wholly owned subsidiary in India will be opening of a Current Account with an Indian bank. All business transactions pertaining to private limited company should be handled via this current account. The company's first board meeting must pass the board resolution to open this bank account for business. It is advised to select a bank branch close to the business's headquarters to facilitate everyday operations.​

2. Declaration of Commencement of Business

Post opening of bank account, subscriber must deposit the subscription money and then submit Form INC-20A to the Registrar of Companies (ROC) within 180 days of establishment. INC-20 A is the declaration form which need to be submitted before starting the business, indicating that the subscription funds have been deposited into the company's bank account. It is important to know what company should not operate without submitting this form.

3. Issuance of Share Certificates

Within 60 days of incorporation of wholly owned subsidiary the company must issue share certificates to shareholders. This stage is important to formalize the company's shareholding structure and ensure compliance with regulatory obligations.

Key Compliance Requirements

1. Appointment of Auditor

Within 30 days of incorporation of wholly owned subsidiary in India the first Statutory Auditor must be appointed in the board meeting and same should be submitted to the Registrar of Company (ROC) using Form ADT-1. The primary responsibility of the auditor will be responsible auditing financial accounts and assuring their accuracy and compliance with statutory obligations.​

2. Conducting Board Meetings

Within 30 days of incorporation of wholly owned subsidiary in India the company must conduct its first board meeting, and post that hold a minimum of 4 board meetings each year i.e., one in every quarter. Company to ensure that proper meeting minutes are be kept in records accordance to legal standards.

3. Annual Filings

• Annual Return (Form MGT-7): Within 60 days post conducting the company must submit its annual return. The return should contains information about the company's registered office, major business activity, shareholding pattern, and changes in directorship.​
• Financial Statements (Form AOC-4): Within 30 days of the Annual General Meeting, the company must file its annual financial statements, which include the balance sheet, profit and loss statement, and director's report. These disclosures provide openness and accountability in the company's financial activities.​

4. Statutory Registers

The company should maintain registers like registrations of members, directors, and charges several statutory registers at its registered office. These registers must be properly maintained to ensure compliance and operational effectiveness. It is important to constantly updated and made available statutory register for review, as required by law.​

5. Various Tax Registrations

GST Registration: Any Foreign company earning revenue from products or services above threshold limits in India are required to register for GST and comply by all applicable tax laws. The company must register for GST to ensure that it may collect and pay taxes on its sales.

Income Tax: Indian income tax laws, including any applicable transfer pricing laws, must be complied with by foreign businesses. Their profits made in India must be paid in income tax, and in order to avoid fines, this requires the right paperwork to be filed.

MSME Registration : MSME registration provides micro, small, and medium-sized businesses with a variety of benefits, including finance, subsidies, and government programs. Companies that manufacture or provide services and meet the investment and revenue criteria are eligible for MSME registration. The maximum limit to get registered under MSME is for investment in plant and machinery is Rs.50 crores, whereas the previous year's turnover was Rs.250 crores.

IPR/Trademark Registration : Trademark registration and intellectual property rights (IPR) protect an organization's original concepts, innovations, and identity. An application for intellectual property rights (IPR) or trademark registration can be made by any person or business entity that currently possesses or plans to acquire intellectual property assets, such as designs, trademarks, copyrights, or inventions. Businesses looking for legal protection and exclusivity for their intellectual property assets are advised to register.

6. Compliance under FEMA

The private limited company must submit Form FC-GPR on the FIRMS Portal within 30 days of the date of share allocation if it has received foreign direct investment. The Company must first create and register the Entity on the FIRMS Portal before filing the Form FC-GPR.

Furthermore, every private company that had foreign direct investment as of March 31st of the previous fiscal year is required by the Foreign Exchange Management Act, 1999 (also known as "FEMA, 1999") to file the Annual Return of Assets and Liabilities, or "FLA Return," on the RBI's FLAIR portal by July 15th of the following year.

7. Other Corporate Stationery

A private limited company must affix a board outside of every office or place where its operations are conducted and management should ensure that it is located properly and in legible letters, depicting the company's name, registered office address, corporate identity number, telephone number, email address, and website address, if any.

Deadlines for Compliance Requirements

Timely compliance is necessary to guarantee adherence to regulatory standards. Penalties and legal consequences may arise from missing these deadlines. The following is a comprehensive list of important compliance dates for foreign companies registered in India:

1. Declaration of Commencement of Business, Form INC-20A

• Deadline: within 180 days post incorporation
• Details: This form confirms the fact that the subscription funds have been sent into the business's bank account, enabling it to start the operations.

2. Share Certificate Issuance

• Deadline: within 60 days after allocation
• Details: In order to formally establish the ownership structure, subscribers must receive share certificates.

3. Appointment of an Auditor

• Deadline: within 30 days following incorporation
• Specifics: Form ADT-1 must be used to file the appointment of the first auditor with the ROC.

4. Board Meetings

• First Board Meeting : 30 days after incorporation, the first board meeting will take place.
• Meetings after this: At least four meetings a year, one per quarter
• Details: In accordance with legal requirements, accurate minutes of these sessions must be kept.​

5. Annual Return (MGT-7)

• Deadline: Within 60 days post conducting the AGM of the company.
• Details: The annual return (MGT-7) should contains information about the company's major business activities, details of registered office, shareholding pattern, and directorship changes if any.

6. Financial Statements (AOC-4)

• Deadline: Within 30 days following the AGM
• Details: The director's report, the balance sheet, and the profit and loss statement are part of financial statements. These documents guarantee accountability and openness.

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Consequences of Non-Compliance

Failure to comply with legal requirements might result in substantial penalties. Late submission of annual returns and financial statements can result in fines ranging from ₹10,000 to ₹2,00,000 for the company, with additional penalties for defaulting personnel. Noncompliance with tax requirements can also result in significant fines and legal action.

1. Fines and Penalties

Failure to comply with post-incorporation compliance will lead to fines, penalties, and additional interest costs. These financial cost might strain the company's resources and jeopardize its financial health.

2. Business Hindrances

Non-compliance may result in the inability to get required licenses, permits, or approvals, limiting the company's capacity to perform commercial activities smoothly. This might result in delays, disruptions, and lost income opportunities.

3. Closure of the Company

Persistent noncompliance or major violations of regulatory standards may result in the company being closed or dissolved by regulatory authorities. This may result in the loss of investments, jobs, and assets.

Conclusion

Please remember the renowned legal phrase "Ignorantia juris non excusat", which means "ignorance of the law is not an excuse" while starting your company in India. It is a legal principle that states that a person who is unaware of a law cannot avoid responsibility for violating that law simply because they are oblivious of its meaning.

As a result, directors and shareholders are responsible for ensuring that all applicable rules and compliances for a company established in India are in order and must follow them to avoid penalties.

Jordensky specializes in assisting companies through the complexities of opening offices in India, assuring seamless compliance with local legislation from start to finish, resulting in a smooth and legally sound establishment process. Our specialist services encompass everything from initial registration to ongoing compliance, and are designed to help your company enter the Indian market more successfully.

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FAQ's

What is the purpose of Form INC-20A?

Form INC-20A is a declaration of the start of business that must be completed within 180 days of incorporation to show that the subscription funds have been placed in the company's bank account.

When should the first AGM be held?

The first AGM must be convened within nine months of the conclusion of the first fiscal year.

What are the penalties for late filing of annual returns?

Fines range from ₹10,000 to ₹2,00,000 for the company, with additional fines for officers in default.​

Are there specific requirements for board meetings?

Yes, the first board meeting shall be held within 30 days of formation, followed by at least four meetings per year.