An Indian subsidiary of a foreign company is generally governed as an Indian company under the Companies Act, 2013, even if 100% of its shares are held overseas. Foreign ownership does not replace Indian corporate-governance rules; instead, it adds another compliance layer under FEMA, the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 and India's FDI policy.
The practical result is that a foreign-owned Indian subsidiary may need to comply simultaneously with:
Companies Act board, shareholder, audit and filing requirements;
FEMA and FDI rules governing foreign ownership and capital transactions;
significant beneficial ownership rules;
related-party transaction requirements;
transfer-pricing rules for dealings with its foreign parent and group companies; and
sector-specific regulation where it operates in a regulated industry.
The exact obligations depend on whether the subsidiary is private or public, listed or unlisted, its financial thresholds, its ownership chain and the sector in which it operates.
Is an Indian subsidiary of a foreign company itself a “foreign company”?
Usually, no.
A company incorporated in India under the Companies Act is an Indian incorporated company, even where its shares are wholly owned by a foreign corporation.
This should be distinguished from a “foreign company” under Section 2(42) of the Companies Act, which concerns a company or body corporate incorporated outside India that has a place of business in India and carries on business activity in India.
This distinction matters because the governance regime for an Indian subsidiary is different from the regime applicable to a foreign company's branch or other place of business.
The Ministry of Corporate Affairs has also previously clarified that a company incorporated outside India may establish an Indian subsidiary either as a private company or a public company.
Practical point: do not use “foreign subsidiary,” “foreign company” and “Indian subsidiary of a foreign company” interchangeably in compliance documents.
Which laws principally govern a foreign-owned Indian subsidiary?
The core governance framework normally comes from four sources.
1. Companies Act, 2013
The Companies Act regulates matters including:
directors;
board meetings;
shareholder meetings;
financial statements;
statutory audit;
annual filings;
related-party transactions;
beneficial ownership;
corporate social responsibility; and
prescribed board committees.
Companies Act, 2013 — India Code
2. FEMA and the Non-Debt Instruments framework
Foreign investment in an Indian company is regulated under FEMA together with the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 and RBI reporting regulations and directions.
The applicable rules govern matters such as:
whether foreign investment is permitted;
applicable sectoral caps;
automatic versus Government route;
pricing of shares;
issue and transfer of securities; and
foreign-investment reporting.
The RBI states that foreign investment up to 100% is generally permitted under the automatic route for sectors not specifically restricted, subject to applicable laws, sectoral caps and conditions. Specific sectors have their own limits and conditions.
RBI Master Direction — Foreign Investment in India
3. FDI policy
The Department for Promotion of Industry and Internal Trade administers India's FDI policy framework. Foreign ownership must be checked against the applicable entry route and sectoral restrictions rather than assuming that 100% foreign ownership is always permitted.
DPIIT Foreign Direct Investment Policy
4. Income-tax transfer-pricing rules
Transactions between the Indian subsidiary and its foreign associated enterprise may constitute “international transactions” under Section 92B of the Income-tax Act.
Examples can include:
management fees;
software or technical-service charges;
royalties;
purchase or sale of goods;
loans;
guarantees;
cost-sharing arrangements; and
transfers of intellectual property.
Such transactions must generally be analysed under India's arm's-length transfer-pricing framework.
Income Tax Department — Transfer Pricing
How many directors must an Indian foreign-owned subsidiary have?
If incorporated as a private company, it must ordinarily have at least two directors. A public company must have at least three directors.
Section 149(1) of the Companies Act provides these minimum board requirements and ordinarily caps the board at 15 directors unless the company approves a larger board through a special resolution.
Foreign nationals can serve as directors, subject to applicable Companies Act requirements including director identification and filing requirements.
However, foreign ownership does not remove the resident-director requirement.
Must the subsidiary have a resident director in India?
Yes.
Section 149(3) requires every company to have at least one director who stays in India for at least 182 days during the financial year.
For a newly incorporated company, the requirement applies proportionately for the financial year in which it is incorporated.
This is a residence-by-stay requirement. It is not simply a requirement to appoint an Indian citizen.
Example
Suppose GlobalTech Inc. establishes GlobalTech India Private Limited.
Its board consists of:
one US-based parent-company executive;
one Singapore-based executive; and
one director based in India.
The company should ensure that at least one director satisfies the statutory 182-day stay requirement for the relevant financial year.
A foreign parent should therefore monitor residence compliance rather than merely appointing a nominal “local director.”
How often must the board meet?
Section 173 provides that a company must ordinarily:
hold its first board meeting within 30 days of incorporation;
hold at least four board meetings each year; and
ensure that no more than 120 days intervene between two consecutive board meetings.
Different requirements apply to specified categories such as small companies, dormant companies and OPCs.
Directors can generally participate through video conferencing or other permitted audiovisual means in accordance with the Act and applicable rules.
This is particularly useful for foreign-owned subsidiaries whose parent nominees are located outside India.
What is the board-meeting quorum?
Section 174 generally requires quorum of:
one-third of the total board strength or two directors, whichever is higher.
Participation through permitted video conferencing can count towards quorum.
The company should also comply with the applicable Secretarial Standard on board meetings.
Can the foreign parent simply instruct the Indian board what to do?
A foreign parent can exercise shareholder rights and nominate directors where its constitutional and shareholder arrangements permit it. But the Indian subsidiary remains a separate legal entity, and its directors must comply with their duties under Indian law.
Parent-company approval processes should therefore be structured carefully.
A common multinational governance model uses a reserved-matters schedule, requiring parent approval before the Indian subsidiary undertakes matters such as:
major capital expenditure;
borrowings;
acquisitions;
related-party arrangements;
changes in senior management;
material litigation;
share issuances; or
changes to the company's business.
But parent-level approval should not be treated as a substitute for any board or shareholder approval that Indian law requires.
In practice, both approval layers may be necessary.
What disclosures must directors make?
Section 184 requires directors to disclose specified interests.
A director must make the prescribed disclosure:
at the first board meeting in which the person participates as a director;
at the first board meeting of every financial year; and
at the first board meeting after any change in the previously disclosed interests.
The section also imposes specific disclosure and participation restrictions where a director is interested in a proposed contract or arrangement.
This is especially relevant where parent-company nominees sit on the Indian board and the subsidiary regularly contracts with:
the foreign parent;
sister subsidiaries;
other group companies; or
entities in which the nominee director has an interest.
How are transactions with the foreign parent governed?
Transactions between an Indian subsidiary and its foreign parent can trigger both corporate-law and tax requirements.
Companies Act requirements
Section 188 regulates specified related-party transactions, including:
sale or purchase of goods;
purchase or sale of property;
leasing;
provision or receipt of services;
agency arrangements;
certain offices or places of profit; and
underwriting arrangements.
Board approval is required in circumstances covered by Section 188, subject to the statutory exemptions and conditions. Prescribed transactions exceeding applicable thresholds may also require shareholder approval.
The precise approval requirement should therefore be checked transaction by transaction.
Transfer-pricing requirements
Separately, the Income-tax Act requires qualifying international transactions between associated enterprises to be evaluated using the arm's-length principle.
The Income Tax Department confirms that international transfer-pricing provisions apply to international transactions irrespective of amount, although particular documentation and reporting obligations have their own statutory conditions.
Practical example
Assume Foreign Parent Ltd charges its Indian subsidiary ₹4 crore each year for:
technology;
management support;
global marketing; and
central IT services.
The Indian company should not simply pay the invoice because “head office approved it.”
It should separately consider:
whether Companies Act related-party approvals are required;
whether the services were actually received;
whether the charge is commercially supportable;
transfer-pricing documentation;
withholding-tax implications; and
FEMA rules affecting the payment, where relevant.
Must the company identify its ultimate beneficial owners?
Potentially, yes.
Section 90 of the Companies Act and the Companies (Significant Beneficial Owners) Rules, 2018, as amended, require identification and disclosure of individuals meeting the significant beneficial ownership criteria.
Under the amended rules, an individual may qualify as an SBO where, through the prescribed direct and indirect holding analysis, the individual has at least 10% of specified share, voting or distribution rights, or exercises significant influence or control in the prescribed manner.
This rule is particularly important where the shareholder shown in the Indian company's register is itself a foreign company.
The analysis may have to continue upward through:
intermediate holding companies;
funds;
trusts;
partnerships; and
ultimate controlling entities
until the relevant natural person or other prescribed position is identified.
Relevant declarations and company filings may include BEN-1 and BEN-2, depending on the facts and applicable rules.
Foreign multinationals should not assume that disclosing only the immediate overseas shareholder satisfies Indian beneficial-ownership requirements.
Are there special restrictions for investors from countries sharing a land border with India?
Yes.
Under the framework introduced through Press Note 3 (2020) and corresponding FEMA amendments, an entity from a country sharing a land border with India—or an investment whose beneficial owner falls within the specified territorial/citizenship restriction—generally requires the Government route.
A subsequent ownership transfer that causes beneficial ownership to fall within this restriction can also require Government approval.
This makes beneficial-ownership diligence important both when the subsidiary is established and when the foreign parent's ownership changes later.
What FEMA filings commonly apply after foreign investment?
Foreign investment does not end with incorporation.
Important RBI reporting requirements can include the following.
FC-GPR
Where an Indian company issues equity instruments to a person resident outside India and the issue qualifies as FDI, Form FC-GPR must generally be filed within 30 days from the date of issue.
Equity instruments generally must also be issued within the applicable FEMA period after receipt of consideration; the current RBI regulations state a 60-day period for the relevant Schedule I investment framework.
FLA Return
An Indian company that has received FDI and falls within the RBI reporting requirement must generally submit its Annual Return on Foreign Liabilities and Assets by 15 July each year.
FC-TRS
Specified transfers of equity instruments involving resident and non-resident holders require reporting in Form FC-TRS, subject to the applicable FEMA regulations.
The transaction must also comply with applicable FEMA pricing rules.
For an unlisted Indian company issuing equity instruments to a person resident outside India, the RBI's current Master Direction generally requires the issue price not to be below a valuation determined using an internationally accepted arm's-length methodology and certified by the prescribed professional.
Does the subsidiary need to hold an AGM?
Ordinarily, yes.
Section 96 requires every company other than an OPC to hold an annual general meeting.
The first AGM must generally be held within nine months from the close of the first financial year. Subsequent AGMs must generally be held within six months from the close of the financial year, and no more than 15 months should ordinarily elapse between two AGMs, subject to the statutory rules and permitted extension for later AGMs.
Foreign ownership does not dispense with these requirements.
What annual ROC filings does the subsidiary normally make?
A foreign-owned Indian company generally has the same annual Companies Act filing obligations applicable to an equivalent Indian company.
Two central filings are:
Financial statements
Section 137 generally requires adopted financial statements and the required accompanying documents to be filed with the Registrar within 30 days of the AGM.
The principal annual filing is commonly made through the applicable AOC-4 form, subject to the company's classification and filing requirements.
Annual return
Companies generally file their annual return under Section 92 using the prescribed MCA form.
MCA currently uses MGT-7 for companies other than OPCs and small companies, with MGT-7A used for the prescribed simplified category.
Other event-based filings may arise during the year for matters such as:
director changes;
share allotments;
registered-office changes;
creation or satisfaction of charges;
changes to authorised capital; and
special resolutions.
Must the Indian subsidiary appoint a statutory auditor?
Yes, Companies Act audit requirements apply to an Indian incorporated subsidiary in the same way they apply to other companies of the corresponding class.
The fact that the foreign parent prepares consolidated accounts overseas does not replace the Indian company's own statutory financial statements and audit obligations.
The subsidiary should therefore coordinate:
Indian statutory audit;
group reporting;
consolidation packages;
transfer-pricing documentation; and
parent-company audit requests
without assuming that group audit procedures satisfy Indian statutory obligations.
When do independent directors and board committees become mandatory?
Not every foreign-owned private subsidiary must automatically appoint independent directors or create every Companies Act committee.
These obligations depend principally on the company's legal classification and the thresholds prescribed under the Companies Act and rules.
For example, Section 149 expressly requires independent directors for listed public companies and permits prescribed requirements for specified classes of public companies.
Depending on applicability, larger companies may also require committees such as:
Audit Committee;
Nomination and Remuneration Committee;
Stakeholders Relationship Committee; and
CSR Committee.
The company should test applicability annually rather than assuming its incorporation-stage governance structure remains sufficient indefinitely.
When does CSR apply to an Indian subsidiary?
Foreign ownership does not exempt an Indian company from Section 135.
CSR provisions can apply where the company meets the statutory financial thresholds, including:
net worth of ₹500 crore or more;
turnover of ₹1,000 crore or more; or
net profit of ₹5 crore or more
within the applicable statutory period.
MCA's official CSR guidance confirms these thresholds.
Where Section 135 applies, the company must examine the current CSR expenditure, committee, reporting and unspent-amount requirements relevant to its circumstances.
Can a foreign-owned Indian subsidiary use a different financial year from April to March?
The statutory rule under the Companies Act generally uses a financial year ending 31 March.
However, the Companies Act contains a specific mechanism under Section 2(41) enabling certain Indian companies that are holding companies or subsidiaries of companies incorporated outside India to seek approval for a different financial year where necessary for consolidation outside India.
This should not be treated as automatic permission merely because the parent uses a calendar year.
The company should obtain the required legal approval before changing its statutory financial year.
What governance mistakes do foreign parents commonly make?
Treating the Indian subsidiary as merely a department
The subsidiary has its own corporate existence, board, books, approvals and filing obligations.
Using parent approval instead of Indian corporate approval
An email from global headquarters does not replace a board resolution or shareholder resolution required by Indian law.
Ignoring director conflicts
Parent nominees may have disclosure obligations when the subsidiary transacts with group companies.
Paying group charges without documentation
Management fees, royalties and intercompany service charges should be supported by agreements, evidence of services, corporate approvals and transfer-pricing analysis.
Missing FEMA filings after share transactions
Further capital injections, rights issues, share transfers and restructuring can trigger fresh FEMA compliance.
Looking only at the immediate shareholder
SBO and Press Note 3 analysis may require examination of the ownership chain behind the foreign shareholder.
Assuming private-company status means “light regulation”
Private companies receive some exemptions and relaxations, but they still have substantial governance, audit, filing and foreign-investment obligations.
Foreign Subsidiary Governance Checklist
Before each financial year, an Indian subsidiary of a foreign group should review at least the following:
Governance area
Key question
Company status
Private/public? Listed/unlisted? Small company?
Foreign investment
Is the current foreign ownership permitted under the relevant sectoral cap and entry route?
Board
Are minimum director and resident-director requirements satisfied?
Meetings
Are board-meeting frequency, quorum, notices and minutes compliant?
Directors
Have annual interest disclosures been updated?
Parent transactions
Are Sections 184/188 and transfer-pricing requirements addressed?
Beneficial ownership
Has the SBO position been reviewed after ownership changes?
Capital transactions
Have FC-GPR/FC-TRS and pricing rules been checked?
Annual FEMA filing
Is the FLA return required and scheduled?
Financial statements
Are Indian statutory accounts and audit complete?
ROC filings
Are AOC-4 and annual-return filings scheduled?
Committees
Have independent-director and committee thresholds been re-tested?
CSR
Has Section 135 applicability been checked?
Sector regulation
Do RBI, SEBI, IRDAI, telecom, defence, fintech or other industry rules apply?
FAQs1. Can a foreign company own 100% of an Indian subsidiary?
Often yes, but not universally. The permitted foreign ownership depends on the sector, applicable sectoral cap, entry route and investor-related restrictions under FEMA and India's FDI policy.
2. Does a wholly foreign-owned subsidiary need an Indian director?
It needs at least one director satisfying Section 149(3)'s requirement of staying in India for at least 182 days during the relevant financial year. The law does not frame this simply as an Indian-citizenship requirement.
3. Can all other directors be foreigners?
Foreign nationals can generally serve as directors subject to Indian director-appointment, identification and filing requirements, provided the company continues to satisfy the resident-director and other applicable board-composition rules.
4. Can board meetings be held by video conference?
Generally yes. Section 173 expressly recognises director participation through video conferencing or other prescribed audiovisual means.
5. Does the foreign parent control the Indian subsidiary's board?
The parent can exercise contractual and shareholder rights, including nomination rights where properly structured. But directors of the Indian company must still discharge their own statutory duties and the Indian subsidiary must obtain approvals required under Indian law.
6. Is every parent-company transaction a related-party transaction?
The foreign parent will ordinarily fall within the corporate relationship framework relevant to related-party analysis, but the approval requirement depends on the particular transaction and the statutory provisions and exemptions that apply. Section 188 should be analysed for each covered transaction.
7. What is FC-GPR?
FC-GPR is the RBI reporting form generally used when an Indian company issues qualifying equity instruments to a person resident outside India. It is generally due within 30 days from the issue date.
8. What is the FLA return deadline?
For entities subject to the RBI FLA reporting requirement, the annual return is generally due by 15 July.
9. Does the subsidiary need to disclose its ultimate beneficial owner?
It may. Section 90 and the Significant Beneficial Owners Rules require identification and reporting where an individual satisfies the prescribed significant-beneficial-ownership tests. The threshold analysis commonly starts at 10%, but the rules also cover specified influence and control situations.
10. Are CSR rules applicable to foreign subsidiaries?
Yes, if the Indian company independently satisfies the statutory Section 135 criteria. Foreign ownership does not create a blanket exemption.
