Setting up a Wholly Owned Subsidiary (WOS) in India

India is also among the most enticing destinations in the globe to invest in-a huge consumer base, availability of talent, infrastructural development and a stable corporate law environment are some of the aspects that make India a good destination of foreign investment. A Wholly Owned Subsidiary (WOS) is an Indian firm in which the foreign parent owns the entire shareholding, and is the most commonly used approach in many cases where the global company wants complete control over operations in India. This is your step-by-step guide to the legal structure, legal process, documentation, time frames, compliance, and traps and pitfalls to avoid to get from paper to incorporation with the confidence that you have done it correctly.

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1) What is a Wholly Owned Subsidiary?

A WOS is an Indian private limited (most common) or a public limited company (rare in the case of a greenfield), whereby all stock is owned by a foreign enterprise (either directly or through nominees). It is legally a separate legal person and its capital is at risk only to the extent of the capital invested in it, and provides to global groups the same limited liability, governance leverage, and IP ring-fencing as any Indian company.

Why not a branch/liaison/LLP instead of WOS?

• Operational scope: A WOS is allowed to conduct almost any legal business (with sectoral restrictions and licensing) as opposed to a branch/liaison office, which is operated under the RBI approval.
• Facility of contracting and direct employment: In the capability to make Indian contracts, employ people directly, check payroll and issue ESOPs (with compliance).
• Tax clarity: The company is treated as a domestic company under Indian taxation; greater levers in planning than other models of dependent PE risk.
• Brand control: This gives it full equity control, brand alignment, and allows it to govern more easily by transfer pricing.

2) Legal Framework You Need to Know

The establishment and operation of a WOS is mainly associated with four regimes:

• Company Act, 2013 and Company (Incorporation) Rules, 2014: incorporation, directors, share capital, filings.
• The 1999 Foreign Exchange Management Act, as amended (FEMA) and Consolidated FDI Policy: who can invest, sector limits, pricing, reporting to RBI through FIRMS portal (ARF/FC-GPR/FC-TRS equivalents as applicable).
• Income tax Act, 1961 and GST law: corporate tax, indirect tax registration and compliance, withholding, transfer pricing.
• Sectoral legislations: e.g., DPIIT press releases, SEBI, insurance, telecom, defence, fintech/PCI, ed-tech norms, or state-level licenses, based on your industry.

FDI entry routes:
The majority of sectors are automatically routed (no previous RBI/government approval), other sensitive sectors (e.g. defense, media segments) need government approval. Furthermore, remember about Press Note 3 (2020) limitations to the investments of land-bordering countries; this needs to be approved by the government beforehand.

3) Pre-Incorporation Checklist

Before you file, get these fundamentals aligned:

• Shareholding & capital plan: Decide authorized/paid-up capital and whether equity will be subscribed directly by the foreign parent. Even a low paid-up capital (e.g., ₹1 lakh) can work—business needs, sectoral norms, and banking comfort should drive the number.

• Business objects: Draft a Main Objects clause that is broad enough for near-term pivots but precise enough to avoid licensing mismatches.

• Directors & nominees: Minimum two directors, at least one Indian resident (≥182 days in the preceding year). Consider appointing a professional resident director early.

• Registered office: A local Indian address (lease/NOC with utility bill). You can change it post-incorporation if needed.

• Name availability: Prefer a unique coined brand + activity descriptor; run a preliminary check to avoid trademark conflicts and MCA rejections.

• Tax & TP strategy: Map inter-company flows (royalty, technical services, management fees, cost sharing), transfer pricing policies, and withholding taxes upfront. It prevents messy post-facto corrections.

4) Step-by-Step Incorporation Process

Step 1: Digital signatures (DSC) & DIN
Obtain DSCs for proposed directors and, if required, Director Identification Numbers (DINs).

Step 2: Name reservation (RUN/SPICe+)
File RUN (Reserve Unique Name) or directly use SPICe+ (Part A) on the MCA portal. Choose two to three logical options in priority order.

Step 3: Charter documents
Draft MoA (objectives) and AoA (governance). For a WOS, build in:

• Right of parent to appoint/remove directors

• Share transfer restrictions (for private company)

• Deadlock resolution, quorum, board mechanics

• ESOP enabling provisions (optional, recommended if you plan to grant options)

Step 4: SPICe+ (Part B) filing
Upload incorporation forms with KYC, proof of registered office, consent to act as director (DIR-2), and subscriber sheets signed by the foreign parent (apostille/notarization often needed depending on the home jurisdiction). Attach NOC from owner of office premises.

Step 5: PAN, TAN, and bank account
SPICe+ issues PAN and TAN along with the Certificate of Incorporation (COI). Open a current account with a bank; many banks provide FIRC/advice for inward remittances essential for RBI filings.

Step 6: FDI money in + RBI reporting
Bring in subscription money from the overseas parent referencing the purpose as capital. Then complete FEMA reporting on RBI FIRMS portal within prescribed timelines (e.g., FC-GPR post allotment). Delays trigger late-submission fees.

Step 7: Post-incorporation registrations

• GST (if crossing thresholds or for B2B input credits)

• Shops & Establishment registration (state-wise)

• PF/ESI (if employee thresholds hit or voluntary enrollment)

• Professional Tax (state-specific)

• Trade/industry-specific approvals (FSSAI, DPIIT for start-ups, etc.)

Indicative timeline: 3–6 weeks under the automatic route, provided documentation is clean and notarization/apostille is not delayed. Add time for bank KYC and sectoral approvals where applicable.

5) Documentation: What the Parent Must Prepare

• Parent company KYC: Certificate of incorporation, charter documents, address proof, tax residency (for DTAA), shareholding chart.

• Board resolution: Approving Indian WOS, authorizing signatories, approving capital and subscribers.

• Apostilled/notarized signatures on subscriber sheets/affidavits (jurisdiction-dependent).

• Directors’ KYC: Passports, proof of residence, photographs; for Indian resident director—PAN, Aadhaar.

• Office proofs: Lease deed/ownership docs, landlord NOC, utility bill ≤2–3 months old.

6) Banking, Capital & FEMA Nuances

• Pricing & valuation: Initial subscription is usually at face value for new issues. If you issue shares at a premium or transfer shares later, ensure valuation by a registered valuer and adherence to FEMA pricing guidelines.

• Reporting clock: Track timelines—inward remittance reporting, allotment, FC-GPR post-allotment. Missing a date can mean penalties or LSF.

• Downstream investment: If your WOS will invest in another Indian entity, downstream FEMA rules and sectoral caps apply.

• Repatriation: Dividends are freely repatriable net of taxes; consider royalty and FTS (fees for technical services) channels with proper contracts and arm’s-length pricing.

7) Ongoing Corporate & Tax Compliance

Corporate secretarial (MCA):

• Board meetings: Minimum 4 per year (with gaps ≤120 days) for typical companies; small companies enjoy relaxations—confirm status.

• Annual filings: AOC-4 (financials), MGT-7 (annual return).

• Statutory registers & minutes: Maintain at registered office; digitize responsibly.

Tax & audit:

• Corporate tax: Standard corporate tax regime or Section 115BAA concessional rates (subject to conditions).

• Transfer pricing: Inter-company agreements, benchmarking, Form 3CEB where applicable.

• Withholding taxes (TDS): On salaries, rent, professional fees, cross-border payments.

• GST: Monthly/quarterly returns, e-invoicing if thresholds apply.

Payroll & labour:

• Employment contracts, POSH policy, standing orders (where applicable), PF/ESI administration, gratuity eligibility, leave policy harmonized with Shops & Establishment rules.

8) Contracts You Should Not Skip

• Inter-company agreements: Technical/management services, trademark/brand license, software license, secondment.

• IP assignment/license: Clarify ownership of IP developed in India; avoid accidental offshoring of value without consideration.

• Data protection & confidentiality: If handling personal data, align with Indian DPDP obligations and cross-border transfer safeguards.

• Commercials: Vendor MSAs, procurement T&Cs, client contracts with Indian governing law/jurisdiction or agreed arbitration.

9) Common Pitfalls (and How to Avoid Them)

1. Vague objects clause → leads to bank KYC or license friction. Draft objects tightly but with strategic breadth.

2. Ignoring sector caps → automatic route assumptions can fail; run a sector screening before filings.

3. Late FEMA reporting → calendar every deadline immediately after remittance; assign internal + external owners.

4. Under-documented inter-company flows → triggers TP disputes. Paper every service with scope, rates, and evidence of benefit.

5. Underestimating payroll laws → early hires still need compliant contracts, PF/ESI where applicable, POSH constitution (if thresholds).

6. Trademark lag → file India trademark applications early to protect brand and ease bank/market onboarding.

7. One-bank dependence → delays in KYC account opening can stall operations; parallel-process with two banks if timelines are critical.

10) Exit & Re-organisation Options

• Share transfer to another group entity (ensure FEMA pricing/reporting).

• Buy-back / capital reduction under Companies Act with tax analysis.

• Merger (Amalgamation) with another Indian entity via NCLT route.

• Winding-up/Strike-off for dormant entities—clear tax/commercial liabilities first.

11) Quick FAQs

Q1. Can a foreign national be the sole director of a WOS?
You need at least two directors for a private company and one must be an Indian resident. Foreign nationals can be directors alongside.

Q2. Is minimum capital mandated?
No statutory minimum for private companies, but choose a number that satisfies business optics and bank comfort.

Q3. How long does it take?
If under automatic route with clean documents, 3–6 weeks is realistic for incorporation, banking, and initial FEMA filings; sector approvals add time.

Q4. Can the WOS do multiple activities?
Yes, if covered by its objects and compliant with sectoral rules. Amend objects via shareholder resolution if you pivot.

Final Word

A WOS offers control, credibility, and strategic flexibility in India—provided you align FDI compliance, corporate governance, tax planning, and sectoral approvals from day one. With the right documents, banking plan, and compliance cadence, the process is straightforward—and sets you up for hiring, sales, and scale without regulatory surprises. Ready to start or need a second opinion on your structure, FEMA filings, or inter-company contracts? Book a legal consultation to get an actionable roadmap tailored to your sector, capital plan, and go-to-market.