/ Shareholding Structure for a Subsidiary of Foreign Company in India
The shareholding pattern at the time of incorporation of a company typically outlines the distribution of shares among the initial equity shareholders or founding members of the company.
The shareholding pattern indicates the percentage of shares held by each shareholder or group of shareholders. Typically, it reflects the contribution of each shareholder towards the initial capital of the company.
It’s essential for the founders and initial shareholders to carefully consider the shareholding pattern during the incorporation process, as it can have significant implications for the governance and control of the company in the future.
Under Indian Laws, we have the concept of Authorized Share Capital as well as Issued and subscribed share capital. Authorised Share Capital refers to the maximum amount of capital that the company is authorized to raise through the issuance of shares. It’s specified in the company’s Memorandum of Association (MOA) and Articles of Association (AOA).
Issued Share Capital is the portion of authorized share capital that the company actually issues and allocates to shareholders at the time of incorporation. It represents the total value of shares that have been allotted to shareholders.
Meeting of Shareholders in a Private Limited Company
For incorporation of a Private Limited company, there must be minimum two shareholders of the company. Shareholders can be individuals or corporate bodies or a combination of both. Every incorporated company needs to conduct a minimum one meeting of shareholders annually known as Annual General Meeting (AGM). In addition, a company may also need to organise need based shareholders meeting, which is called Extra-ordinary General Meeting (EGM).
Place of Meeting of AGM & EGM
As per section 96 of the Companies Act, 2013, every AGM shall be held during business hours i.e. between 09:00 AM to 06:00 PM on a day that is not a National holiday. It shall be held either at the Registered Office (RO) in India or at some other place within the city, town or village in which the RO is situated. However, AGM of an unlisted company may be held at any place in India if consent is given in writing or by electronic mode by all members of the company in advance.
As per section 100 of the Companies Act, 2013, EGM of a company shall be held at any place within India. However, EGM of a company, which is the wholly owned subsidiary of a company incorporated outside India may be held outside India.
Requirement of a Quorum for AGM/EGM
As per section 103 of the Companies Act 2013, unless the articles of a company provide a larger number, two members personally present shall be the quorum of the shareholders meeting of the company.
Further as per Section 113, a body corporate, if it is a member of a company, by a resolution of the Board of Directors, can authorise an individual person, to act as its representative at any shareholders meeting of the company. That authorised individual of a corporate shareholder is counted for quorum. Whereas the individual shareholder needs to be personally present to be counted for quorum.
As per section 105 of the Act, any shareholder of the company including individual shareholder, entitled to attend and vote at the meeting of the company shall be entitled to appoint another person as a proxy to attend and vote at the meeting on his/her behalf. However, a proxy does not get counted for the purpose of quorum.
It means, a company having two shareholders including an individual shareholder, needs to ensure the personal presence of individual shareholder to fulfil the requirement of a valid quorum in AGM and EGM.
Online audio-visual meeting of AGM & EGM
As per the provisions of the Companies Act, 2013, AGM of Indian companies can be conducted only in India and that through physical meeting only.
However, during pandemic, Ministry of Corporate Affairs (MCA) has issued circular on 5th May 2020 allowing to conduct the AGM through audio visual mode temporarily. This date, since then is getting extended and the last extension permits a company to conduct the AGM through audio visual mode until 30th September 2024 only.
Since the provisions of law in the Companies Act, 2013, with respect to conducting AGM in India has not been changed, the extension of timeline through circular looks temporary in nature.
For online meeting, presence of quorum in India is not relevant, as shareholder can join the meeting through VC from distant location as well.
Conclusion: For incorporation of a subsidiary company in India, we would recommend having at least two corporate shareholders instead of individual shareholders so that AGM and EGM can be conducted through local authorised person of the corporate shareholders.
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