Foreign Company

                                  Foreign Company

Companies Act 1956 Did not have any definition of Foreign Company. As per Section 591 of Companies Act 1956 foreign company means companies incorporated outside India which have established place of business within India where not less than fifty per cent , of the paid –up share capital of a company incorporated outside India and having an established place of business in India, is held by one or more citizens of India or by one or more bodies corporate incorporated in India, or by one or more citizens of India and one or more bodies corporate incorporated in India whether singly or in aggregate. 

        Companies Act 2013 Defines Foreign Company for the first time. As per Section 2(42) of Companies Act 2013 “foreign company” means any company or body corporate incorporated outside and has a place of business in India whether by itself or through an agent ,physically or through electronic mode ; and b) conducts any business activity in India in any other manner

        As per Rule 2(1)(c) of the Companies (Registration of Foreign Companies) Rules 2014, for the purposes of clause (42) of Section 2 of the Companies Act 2013, “electronic mode” means carrying out electronically based, whether main server is installed in India or not, including but not limited to business and to consumer transactions, data interchange and other digital supply transactions. offering to accept deposits or inviting deposits or accepting deposits or subscriptions in securities in India or from citizens of India.

         Financial settlements, web based marketing, advisory and transaction services, database services and products, supply chain management Online services such as telemarketing, telecommuting, telemedicine, education and information researches all related data communication services, whether conducted by email, mobile devices, social media etc.

          As per Section 379 of Companies Act 2013, where not less than fifty percent of the paid share capital, whether equity or preference or partly equity and partly preference, of a foreign company is held by one or more citizens of India or by one or more companies or bodies corporate incorporated in India, or by one or more citizens of India and one or more companies or bodies corporate incorporated in India, whether singly or in the aggregate, such company shall comply with provisions of chapter XXII and such other provisions of Companies Act 2013 as may be prescribed with regard to the business carried on by it in India as if it were a company incorporated in India. Impact of New Definition of Foreign Company under Companies Act 2013 

           Companies Act 2013 has expanded the scope of the definition of Foreign Company. Under the Companies Act 2013 need for physical presence has been done away with, as the company or body corporate incorporated outside India with no physical presence yet having virtual presence are covered under new definition of Foreign Company under Companies Act 2013. 

          Companies in media and broadcasting business like Zee Entertainment Enterprise Limited which have foreign subsidiaries like Asia Today Limited which render satellite services to the group will now be covered under the new definition of Foreign Company under Companies Act 2013. 

             Indian Asset Management Companies with foreign subsidiaries in countries like Singapore and Mauritius making investments in Indian securities or Indian mutual funds will now be covered under the new definition of Foreign Company under Companies Act 2013. 

        Online travel companies with joint venture with several airlines selling tickets of those airlines on their online portal will now be covered under new definition of Foreign Company under Companies Act 2013.

       Airline companies who operate through their booking agents in India will now be covered under new definition of Foreign Company under Companies Act 2013. Subsidiary of Foreign Holding Company. 

            As per Section 4(7) of the Companies Act 1956 , a private company being a subsidiary of a body corporate incorporated outside India ,which if incorporated in India would be a public company within the meaning of the Companies Act 1956 shall be deemed for the purposes of the Companies Act 1956 to be a subsidiary of a public company if the entire share capital in that private company is not held by that body corporate whether alone or together with one or more other bodies corporate incorporated outside India. Therefore one can say that as per Section 4(7) of the Companies Act 1956, private company incorporated in India would be deemed public company if it is a subsidiary of a public company incorporated out side India except those private company whose entire share capital is held by a public company incorporated outside India whether alone or together with one or more other bodies corporate incorporated outside India. Foreign Companies used this provision to operate in India through subsidiaries which are private companies as per Section 4(7) of the Companies Act 1956. 

          Companies Act 2013 does not have provision similar to Section 4(7) of the Companies Act 1956 . As per proviso to Section 2(71), a company which is a subsidiary of a company, not being a private company, shall be deemed to be a public company for the purposes of the Companies Act 2013 even where such subsidiary company continues to be private company in its articles. 

           Clarification issued by Ministry of Corporate Affairs As per clarification issued by Ministry of Corporate Affairs , an existing company being subsidiary of the company incorporated outside India registered under Companies Act 1956,either as private company or public company by virtue of the Section 4(7) of the Companies Act 2013 will continue as private company or public company as the case may be without any change in incorporation status of such company . The said clarification also clarifies that there is no bar in the Companies Act 2013 for a company incorporated out side India to incorporate subsidiary in India either as public company or a private company. 

             Impact on Foreign Investment Such ambiguity in law generally affects the foreign investments in India as Foreign Companies generally operate through private subsidiary companies in India .