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