Company Law: How to Understand Foreign Company Rules in India

With the emergence of globalization, global integration of economies, societies, technologies and cultures of different countries is the most popular concept that has caught on across the world. Corporate houses existing in one country are now spanning their networks worldwide. This process has led to cross country trade, foreign direct investment, flow of resources and funds and migration. This discussion explains the concept of foreign company rules in detail:

Company Law: Foreign Company’s Meaning and Concept

According to the Companies Act [sec.591 (1)], any company incorporated outside India which has an established place of business in India is a foreign company. The place owned by it, is considered as an established place if it is a particular place at which it conducts its business activities. An office, warehouse, godown are examples of an established place. Under section 591 (2) of the Companies Act, a foreign company is considered as an Indian company when a minimum of 50 percent of its paid–up share capital is owned by one or more Indian citizens or companies, solely or in partnership.

Company Law: Rules applicable to Foreign Companies

Sections 592 to 602 of the Companies Act include rules for foreign companies. Some important aspects covered in these sections are as follows:

Documents:

Within a period of 30 days of owning an establishment, a foreign company has to submit the following mandatory documents with the registrar:

1. A certified copy of memorandum of articles, license, statute.
2. The address of registered office.
3. The list of directors and secretary.
4. Name and address authorized representative of the company who is a resident of India.
5. Address of the principal establishment in India.

Accounts: A foreign company is required to maintain books of account and send 3 copies to the Registrar every year.

Obligations: A foreign company must state the following:

• Country of Incorporation.
• Exhibition of Name.
• Whether liability limited.

Office Where Documents to be Delivered:  Any document which is required to be delivered to the Registrar shall be submitted to the Registrar at New Delhi.

Penalty: If a foreign company is at fault for not complying with the provisions of the Act, its members, who are at fault, are required to pay a fine of up to Rs. 10000.

In addition, the following will have to be adhered to as well:

1. Registration of Charges: The rules of registration of charges, appointment of receivers and maintenance of documents are applicable to a foreign company.
2. Requirement of Prospectus: The important elements that are to be included in the prospectus are:

• Name of the company.
• Name of the original country.
• Liability of shareholder’s is limited or not.
• Specifications about its home country, constitution and laws regarding its formation.
• Subjects mandatory to be included under the Companies Act, 1956.