FOREIGN OWNED AND CONTROLLED COMPANIES (FOCC) UNDER FEMA

COMPANIES THAT ARE FOREIGN OWNED OR CONTROLLED (FOCC) UNDER FEMA

Foreign-owned or Controlled Companies (FOCC) are companies incorporated in India but controlled by a parent country. In this context, the term "parent company" refers to any Indian enterprise or entity that is under the control of non-residents, foreign firms, or multinational organizations.

A foreign business can establish a physical presence in India by opening a liaison office, branch office, or project office, among other options. These offices, however, retain the label of a foreign corporation and are thus not permitted to operate with the same freedom as domestic businesses. They are also not eligible for the various benefits given to domestic businesses, such as tax holidays. Additionally, these offices may only be opened for a brief time with RBI's prior consent.

 

Therefore, choices where they have total control over the entity and that entity can receive the same benefits as domestic enterprises tend to appeal to foreign investors more. For such investors, FOCC has developed into a fantastic source of investment. FOCC can operate as a domestic firm in India. As a result, a lot of businesses prefer to set up an FOCC to gain access to local corporations like Disney India, Star India, etc.

 

Incorporation Requirements

 

FOCC is a company registered under the Companies Act of 2013 that accepts investments from non-residents. Consequently, the following 2 legislatures are involved in regulating FOCC:

 

FEMA: To govern investment-related procedures.

 

Company Act: To regulate the incorporation process and operational issues.

 

With a few additional requirements, such as having at least one Indian director out of two if the FOCC is a private limited company, the process of creating a FOCC is similar to that of incorporating a domestic firm. Additionally, the documents for the foreign director must be in English and apostille-certified.

 

As was already mentioned, FEMA keeps a close eye on foreign investment. The FEMA provisions, such as sectoral caps, entry channels, permitted and prohibited industries, etc., should be carefully examined before investing. One cannot invest in any industry, in any amount, or in any manner they choose. A thorough list of sectors is provided from each perspective.

 

The RBI has identified the following 3 investment ways (routes):

 

Automatic Route: 100% FDI is permitted in certain industries through the automatic route, such as the civil aviation sector.

Approval Route: Sectors where automatic investment is allowed up to a specific percentage are the approval route. Beyond that, investments needed RBI permission in advance. For instance, no clearance is needed for investments up to 49% in domestic scheduled passenger airlines and scheduled air transport services.

 

Prohibited Route: Sectors that foreign businesses are absolutely not permitted to operate in include nuclear power.

In some businesses, automatic clearance exists for a predetermined period of time before requiring government approval, after which it becomes unlawful. Government entities may have a restriction of 49 percent to 74 percent on vehicle investments; however, private sector banking entities may only have a ceiling of 49 percent.

 

FOCC Types

 

Wholly Owned Subsidiary (WOS)

 

A wholly owned subsidiary is one in which the parent business owns all of the stock.

As a result, the WOS option is only available for industries where 100% FDI is permitted via the automatic route or where the foreign investor must first acquire RBI clearance before making a 100% investment.

 

Joint Ventures

 

A joint venture is a business strategy in which two or more companies concur to contribute capital, goods, or services to a specific business initiative. JVs are new projects that at least two companies jointly own. Under a JV, a new company organisation is established, and the participating companies continue to operate independently.

 

In industries where FEMA does not allow 100% FDI, joint ventures may be created. In such circumstances, foreign investors can invest in FOCC alongside domestic firms.

 

A joint venture is typically used when two businesses seek to pool their knowledge and resources to complete a project. In order to achieve the goal of the Joint Venture, a foreign investor may collaborate with the domestic player and take advantage of its local resources, skills, etc.

Acquisition of Existing Company

 

Foreign investors may purchase shares in already-existing businesses as an alternative to starting a brand-new one.

Any current shareholder may sell their investment to the foreign corporation for this reason, or an Indian firm may issue fresh shares to the overseas investors as an alternative.

 

FEMA has mandated that domestic corporations file distinct documentation with RBI in both situations, i.e., a transfer of ownership from one shareholder to another or the purchase of fresh shares.

 

STEPS FOR SETTING UP FOCC

 

For establishing a Wholly Owned Subsidiary,

 

FOCC was incorporated in accordance with the Companies Act. As a result, the incorporation procedure is fairly comparable to that of a Non-WOS.

Through a resolution, the parent company must choose one director to represent it in the management of WOS (The nominated director can be an Indian or a foreign national).

 

If the first director is not an Indian national, the second director also needs to be.

 

After the completion of the incorporation process, the parent business must pay the WOS Company's subscription fee, and the Authorized Dealer Category I banks must obtain the Foreign Inward Remittance Certificate (FIRC) and the foreign investor's KYC.

 

Later that, the WOS must submit an FC-GPR (Foreign Currency- Gross Provisional Return) for clearance to the IRS.

For establishing a Joint Venture-

 

A joint venture's new organisation might be established as either a corporation or a limited liability partnership firm.

 

A joint venture's share capital must be subscribed to by two or more parties in an agreed-upon proportion.

 

The process of incorporating a joint venture is the same as that of a domestic company or domestic LLP when the investment is made in a joint venture up to the RBI-permitted threshold. However, prior RBI clearance is necessary if the investment exceeds the ratio allowed by the RBI.

For Acquiring an Existing Company

 

There are two ways to buy an interest in an existing company.

 

In the first, equity instruments are transferred, whereas in the second, fresh shares are issued. Due to the fact that stock instruments will nearly always be transferred.

 

When shares are transferred by current shareholders to the foreign company, a Foreign Currency-Transfer of Shares (FC-TRS) form needs to be filed with the RBI. However, in compliance with the statutory requirements of the Companies Law, the domestic business must submit FC-GPR if additional shares are issued.

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