Seeking to allay concerns of foreign companies with regard to the new Companies Act, the government has said there would be no compulsion for them to register an Indian subsidiary only as a public company.
The clarification has been issued by the Ministry of Corporate Affairs following various representations made to it seeking clarity about the status of subsidiaries already incorporated or to be incorporated by companies incorporated outside India.
The Companies Act 1956, which has been replaced by the Companies Act, 2013 with effect from current fiscal, had specific provisions giving foreign companies a choice to register a subsidiary in India either as a private or public company.
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However, certain provisions of the new Companies Act was being interpreted as indicating that all Indian subsidiaries incorporated by a foreign company would be deemed as a public company, even if the company wishes to keep that 'private'.
There were also apprehensions that the new Act would also lead to the foreign companies' existing Indian subsidiaries being seen as 'public companies', even if they have been incorporated as private companies.
After looking into the matter, the Corporate Affairs Ministry has said in a circular that "it is clarified that there is no bar in the new Act for a company incorporated outside India to incorporate a subsidiary either as a public company or a private company.
"An existing company, being a subsidiary of a company incorporated outside India, registered under the Companies Act, 1956, either as private company or a public company by virtue of ... (relevant sections)... Will continue as a private company or public company as the case may be, without any change in the incorporation status of such company."
The issue assumes significance as the foreign companies have mostly operated here by setting up Indian subsidiaries. In many cases a 'private company' status is preferred for such subsidiaries due to greater compliance and disclosure requirements for public companies.
There were apprehensions that if foreign companies were not allowed to incorporate their Indian subsidiaries as private companies, it may act as a deterrent for them to operate in India.
