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CS Executive · Setting Up of Business, Industrial and Labour Laws · Setting up of Branch Office, Liaison Office and Wholly Owned Subsidiary by Foreign Company

Kobe Tools KK of Japan has incorporated an Indian wholly owned subsidiary and remitted share application money from abroad through banking channels. Which action best matches the standard FDI compliance sequence for the subsidiary?

The subsidiary must allot shares within the prescribed time after receiving the inward remittance and then report the inflow and share issue to the RBI through its authorised dealer bank. Delay in allotment risks refund requirements, and reporting is not limited to large holdings.

  1. AAllot shares within the permitted period of receipt of the funds, then report the inflow and issue of shares to the RBI through the authorised dealer bankCorrect
  2. BAllot shares whenever convenient, as there is no time limit, and report only at year-end
  3. CReport to the RBI only if the investment exceeds 50% of the capital
  4. DObtain SEBI approval before allotting shares to the parent

Explanation

Under FEMA rules, shares must be allotted within a prescribed time of receipt of the inflow, otherwise the money must be refunded unless the RBI permits otherwise. The company then reports the inflow and the allotment through its authorised dealer. Option B is wrong because a time limit exists, and option C is wrong because the threshold does not apply.

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