FOR INCORPORATING A WHOLLY-OWNED SUBSIDIARY IN GERMANY

For incorporation of a GmbH in Germany, one should  have to adhere the guideline prescribed by the Company Register under whose jurisdiction your GMBH would be formed in Germany. Also, German law would govern incorporation issues.

From the Reserve Bank of India perspective, this is an instance of Overseas Direct Investment (ODI) and you would have to follow guidelines laid down by RBI.

First check whether the overseas investment is under automatic route or approval route. 

If under automatic route,

·         The Indian party (investing co.) is eligible to invest in WOS up to 100% of net worth as per last audited balance sheet without prior approval of RBI.

·         But this ceiling of 100% of Net worth is not applicable if investment is out of funds raised thru ADR/GDR, or balances in Exchange Earners' Foreign Currency account of the Indian party. 

·         Reporting is to be done within 30 days of investment to the AD Category - I bank in Form ODI (part I and II) with prescribed enclosures after which you will be granted a Unique Identification Number (UIN). Forms shall be submitted in physical form and your AD will submit the same through online.

If under approval route:

·         Prior approval of RBI would be required

·         For this purpose, application together with necessary documents should be submitted in Form ODI through their Authorised Dealer Category – I banks.

·         Reserve Bank would, inter alia, take into account the following factors while considering such applications:

a) Prima facie viability of the JV  / WOS outside India;

b) Contribution to external trade and other benefits which will accrue to India through such investment;

c) Financial position and business track record of the Indian party and the foreign entity; and

d) Expertise and experience of the Indian party in the same or related line of activity of the JV / WOS outside India.

From Company Law Point of View

As far as Companies Act, 1956 is concerned ensure compliance with Sec.372A as the investment should be within the limit. 

Kindly note that it can be inferred from reading of sec .372 A, that investment in other body corporate for the purpose of "making "it a wholly owned subsidiary is not exempted form applicability of sec. 372A because the exemption is for investment in wholly owned subsidiary. So needless to say that there must be status of wholly owned subsidiary before the proposal of investment in a company.

Every inter corporate investment/loan/guarantee/security falling within section 372A (even within limit) must be sanctioned by a resolution of the board passed at its meeting. Such decision can not be taken by circular resolution nor can it be delegated by the Board.

If investment is beyond limit, then follow provisions of Sec 372A by taking approval of shareholders in General meeting.

R.V.Seckar

rvsekar2007@gmail.com

919848915177

PROCEDURE FOR INVESTING IN WOS IN ABROAD

INITIAL COMPLIANCE'S -

1. Board Resolution under Section 292(1) (d) & S.372A for investment and incorporation of Wholly Owned Subsidiary.
   
   
2. Form ODI – Part I (i. e. details of JV/ WOS, Indian Parties and the financing pattern of the overseas entity) is required to be filed by Investing Indian Company with Designated Authorised Dealer Bank. Certificate by the Statutory Auditor for compliance of FEMA is also required to be submitted along with ODI form.
   
   
3. Under Automatic Route, in case of new proposals, immediately after effecting remittance, the Designated Authorised Dealer Bank will forward Form ODI – Part I along with Part II (i. e. Remittance Report) to RBI for obtaining Unique Identification Number.
   
   
4. On receipt of the Form from the AD bank, RBI will allot an Unique Identification Number to each JV/ WOS, which is required to be quoted in all the future correspondence by AD Bank/ Indian Company.

How Much Quantum can be Invested:

Under automatic route , up to 100% net worth of investing company in its foreign subsidiary or JV Company.

If your Indian Company net worth is say Rs 1 Crore , you can invest up to 1 Crore under automatic route in the WOS / JV company in foreign country.

How Much can be invested in WOS / JV by an Indian Listed Company  ?

As per RBI guidelines , if  there is no JV or WOS , Listed Indian companies can invest up to 50 % of their net worth as on the date of the last audited Balance Sheet in overseas companies, listed on a recognized stock exchange, or by way of rated debt securities issued by such companies by way of portfolio investment.

Prohibitions

Indian parties are prohibited from making investment in a foreign entity engaged in real estate (meaning buying and selling of real estate or trading in Transferable Development Rights (TDRs) but does not include development of townships, construction of residential/commercial premises, roads or bridges) or banking business, without the prior approval of the Reserve Bank.

POST INVESTMENT COMPLIANCE'S -

1. An Indian Company which has made direct investment abroad is under obligation to receive share certificate or any other document as an evidence of investment, and submit the documents / Annual Performance Report to the Reserve Bank, in accordance with the provisions specified in Regulation 15 of the Notification. The share certificate or any other document as evidence of investment has to be submitted to and retained by the designated AD Category - I bank, who is required to monitor the receipt of such documents and satisfy themselves about the bonafides of the documents. A certificate to this effect should be submitted by the designated AD category – I bank to the Reserve Bank along with the APR (Part III of Form ODI). 
   
   
2. Annual Performance Report (APR) should be submitted, through the designated AD Category-I bank, every year within 3 months of the closing of the annual accounts of the WOS i. e. on or before 30.06.2010
   
   
3. A JV / WOS set up by the Indian party as per the Regulations may diversify its activities / set up step down subsidiary / alter the shareholding pattern in the overseas entity . The Indian Company should report to the Reserve Bank through the AD Category - I bank, the details of such decisions within 30 days of the approval of those decisions by the competent authority of the JV / WOS concerned in terms of local laws of the host country and include the same in the Annual Performance Report (APR—Part III of form ODI) required to be forwarded to the AD Category-I bank.
   
   

   R.V.Seckar

    

   rvsekar2007@gmail.com

   
   

   919848915177