• Regarding US company acquiring India company

I am a business owner in the US and I am trying to acquire and Indian company and we are expecting to run it from the US - eventually payroll will be done from the US. I would like to double check and get a second opinion regarding the steps needed to finish this process.  Here is the process we have been told:

1. Purchase a 100% of the shares of the Indian company. Once the shares are acquired Kaveri soft Inc will become holding company and Dispatch track software private limited will become wholly owned subsidiary.
2. Wire Transfer money to the share holders (current owners) to complete the transaction.
3. File FORM FCTRS with the banker of the Indian company along with several documents.  Receive approval of this application from the bank.

Beyond this, is there anything else needed in the form of company incorporation?  What else is needed before the Indian company employees become employees of the US company's Indian subsidiary?

Kindly advise
Asked 12 months ago in Business Law from United States
1. Foreign companies can set up wholly owned subsidiary in sectors where 100% foreign direct investment is permitted under the FDI policy. For registration and incorporation of the company, an application has to be filed with Registrar of Companies (ROC) as well as RBI. Once a company has been duly registered and incorporated as an Indian company, it is subject to Indian laws and regulations as applicable to other domestic Indian companies.
Foreign equity in such Indian companies can be up to 100% depending on the requirements of the investor, subject to equity caps in respect of the area of activities under the FDI policy.

2. Telecom, Coal and lignite, Mining, Private sector banking, Insurance, Domestic airlines, Petroleum (other than refining), Refining, Investing companies/ Services sector, Atomic minerals, Defence industry sector, Broadcasting, Setting up hardware, facilities such as uplinking, HUB, etc., Cable network, Direct-to-Home, Terrestrial Broadcasting FM, Small scale industries (SSI) sector, Satellites, Tea sector, Print Media are the sectors which attract ceiling on foreign ownership.

3. FDI in relation to control or ownership of a company in India takes one of two routes-  Procedure under automatic route and Government approval. Automatic route is available to all sectors or activities that do not have a sector cap i.e. where 100% foreign ownership is permitted, or for investments that are within a sector cap and where the Automatic route is allowed. FDI in activities not covered under the automatic route requires prior Government Approval and are considered by the Foreign Investment Promotion Board (FIPB). Approvals of composite proposals involving foreign investment/ foreign technical collaboration are also granted on the recommendation of the FIPB. FDI in sector/ activities to the extent permitted under automatic route does not require any prior approval either by Government of India or RBI. The investor are only required to notify the Regional office concerned of RBI and file the required documents with that office within 30 days of receipt of inward remittances. The investment should be in accordance with the prescribed guidelines. This procedure is applicable only for fresh investments directly in Indian companies and not for purchase of shares from the existing shareholders.

Under Government approval route, application of all FDI cases, except Non-Resident Indian (NRI) investments and 100% Export Oriented Units (EOUs), should be submitted to the FIPB Units, Department of Economic Affairs (DEA), Ministry of Finance. Applications for NRI and 100% EOU cases should be presented to SIA in Department of Industrial Policy and Promotion. Application can also be submitted with Indian Missions abroad who forward them to the Department of Economic Affairs for further processing.
Ashish Davessar
Advocate, Jaipur
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For  FDI   i n ve st me n t  und er the automatic route,the RBI must be notified in Advance
Reporting Form within 30 days from receipt of such investment by the Indian company.
Further, the equity or equity linked instruments should be issued within 180 days
from the date of receipt of the inward remittance. Thereafter the Indian company
has to file the Form FC-GPR (including certain supporting documents) with the RBI
not later than 30 days from the date the shares are issued to the concerned foreign
investor

2) For certain specified sectors under the automatic route, FDI is permitted up to
the prescribed limits (popularly called sectoral caps).
Ajay Sethi
Advocate, Mumbai
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1.All the steps stated are alright but 100% share holding of an Indian Company by a Foreign Company is not permitted,


2. The limit was 49% of the share to be held by the Foreign Company which has recently been enhanced to 51%.
 
Krishna Kishore Ganguly
Advocate, Kolkata
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A foreign company planning to set up business operations in India may:
Incorporate a company under the Companies Act, 1956, as a Joint Venture or a Wholly Owned Subsidiary.
Set up a Liaison Office / Representative Office or a Project Office or a Branch Office of the foreign company which can undertake activities permitted under the Foreign Exchange Management (Establishment in India of Branch Office or Other Place of Business) Regulations, 2000.
Reporting of transfer of shares between residents and non-residents and vice- versa is to be made in Form FC-TRS. The Form FC-TRS should be submitted to the AD Category – I bank, within 60 days from the date of receipt of the amount of consideration. The onus of submission of the Form FC-TRS within the given timeframe would be on the transferor / transferee, resident in India.
The transferee/his duly appointed agent should approach the investee company to record the transfer in their books along with the certificate in the Form FC-TRS from the AD branch that the remittances have been received by the transferor/payment has been made by the transferee. On receipt of the certificate from the AD, the company may record the transfer in its books.
On receipt of statements from the AD bank , the Reserve Bank may call for such additional details or give such directions as required from the transferor/transferee or their agents, if need be.
Foreign investment by way of issue / transfer of ‘participating interest/right’ in oil fields by Indian companies to a non resident would be treated as an FDI transaction under the extant FDI policy and the FEMA regulations. Accordingly, transfer of ‘participating interest/ rights’ will be reported as ‘other’ category under Para 7 of revised Form FC-TRS and issuance of ‘participating interest/ rights’ will be reported as ‘other’ category of instruments under Para 4 of Form FCGPR.


Besides above formalities, you may have to comply with few more  instructions that may be notified by RBI related to your last question. 
T Kalaiselvan
Advocate, Vellore
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