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The business world is no more disconnected or limited to political territories. We all know that many business entities function in many countries as a foreign company and have expanded themselves to operate all over the world. However, when you wish to start operations in a country, other than the home country, you will have to comply with various rules and regulations that are stipulated by that particular country for foreign business entities. Similarly, India too has specific stipulations and provisions for foreign companies.

A foreign company in India is an entity that has been incorporated outside India, but happens to perform business operations and activities in India. It has been accurately defined under the Companies Act 2013. A Foreign company was previously defined under the old Companies Act of 1956, but the new Act of 2013 has included many other provisions and stipulations for a foreign entity and defined it lucidly and precisely.

Under the Companies Act 2013, a ‘Foreign Company’ has been defined under section 2 (sub-section 42). It defines a foreign company as any entity that has been incorporated outside India and –

  • Happens to have a place of business in India either physically, through any other agent or via electronic/digital means.
  • Business activities are conducted by the entity in any other manner.

 To be considered a Foreign Company in India, the entity must fulfill the above-mentioned criteria completely.

Let us now try to comprehend the implications of the terms ‘electronic mode’ and ‘business activities’ with regard to the aforementioned criteria under the Companies Act 2013.

The term ‘electronic mode’ is defined under the Companies (Specification of Definitions Details) Rules, 2014 with regard to a company (as given under Rule 2(h) and Rule 2 (1)(c) of Companies ‘Registration of Foreign Companies’ Rules, 2014). In accordance with the aforementioned sections, electronic mode may include all transactions that have an electronic or digital base, including –

  •  Business to business and business to consumer transactions
  •  Data exchange
  •  Digital supply transactions
  •  All online services
  •  Data communication services (through mobile, email, social media, cloud computing, etc.)

Thus, even if the source of the transaction (main server) happens to be outside India, any activity being carried out in the electronic mode in India by a business entity will come under the purview of a foreign company in India.

 The term explanation of the term ‘business activities’ can be sought from companies (Registration Offices and Fees) Rules, 2014 and the definitions of specified terms for a ‘foreign company’ under the Companies Act, 2013. As per the aforementioned sections, a business activity with regard to a foreign company would not just involve having a place of business or carrying out a transaction physically In India, but also such transactions which have been entered into with any person residing in India (even if it does not have any place of business or electronic server in India). This has led to the consideration of e – commerce sites and other companies as a foreign company even if they do not have any office or physical transaction in India.

Also read: Compliances That A Foreign Company Needs To Follow

Important Points

  • The new Companies Act 2013 also includes ‘body corporates’ in its definition of a foreign company, due to which the scope of the definition has been extended
  • Even a virtual presence is enough for an entity to come under the purview of the definition of a foreign company under the new Companies Act 2013.
  • The regulations and compliances for foreign companies under the new companies act have been widened and compliance has been strictly stipulated. Provisions of chapter 22 have been stipulated to be followed by foreign companies as well as those under the new law.

     

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