What corporate legal services does Corporate Legit provide?

Corporate Legit offers India Entry Services, International Taxation, Direct & Indirect Taxation, Secretarial & Corporate Legal Compliances, Foreign Direct Investment, Intellectual Property Rights, Licensing and Registration, company registration services, Merger and Amalgamation (M&A), Litigation, Virtual CFO Services, International Advisory, Audit Services, and Registration of NGOs.

What India Entry Services do you offer?

India Entry Services helps foreign companies establish operations in India. The service assists with business structuring, necessary approvals, and compliance requirements for foreign businesses seeking to enter the Indian market.

What does your Corporate Secretarial practice cover?

Our Corporate Secretarial practice handles statutory compliance requirements for companies operating in India, including corporate legal documentation, board meeting management, and regulatory filings.

What are your Corporate Restructuring services?

Corporate Legit’s restructuring services include mergers and acquisitions, demergers, and corporate restructuring activities in accordance with regulatory requirements.

What Intellectual Property services do you provide?

We provide trademark search and registration services in IP databases, along with other intellectual property protection services, to safeguard clients’ IP rights in India.

How does Corporate Legit handle taxation matters?

Our taxation practice provides advice under Direct & Indirect Taxation, including income tax planning, GST compliance, double taxation avoidance advisory, and international taxation matters, to ensure clients remain compliant with Indian tax laws

What Registration & Licensing Services do you offer?

Corporate Legit provides registration and licensing services to help businesses obtain the necessary operational permits and registrations to conduct business legally in India.

What are your Regulatory Compliance & Audit Services?

We provide Corporate Compliance services to help businesses meet their statutory obligations and remain compliant with Indian regulatory requirements, along with supporting them through audit services in India whenever needed.

Do you provide Virtual CFO Services?

Yes, Corporate Legit offers Virtual CFO services for businesses requiring financial management expertise without a full-time Chief Financial Officer.

What makes Corporate Legit’s team qualified?

The senior members of the Firm possess professional qualifications in law, accountancy, company secretarial practices and management with international class experience from working with world-class advisory firms, including Big-4 accounting firms and international law firms.

Do you assist with NGO registration?

Yes, Corporate Legit provides Registration of NGOs (Non-Government Organisation) services to help establish non-profit entities in India.

How can businesses contact Corporate Legit?

Businesses can contact Corporate Legit at +91 9990607535, email at office@corporatelegit.in, or visit the office at A-77, Second Floor, Sector-4, Noida 201301, New Delhi NCR, India.

Foreign Company Subsidiary Compliance in India Guide

Foreign Company Subsidiary Compliance India

January 22, 2026
corporatelegit corporatelegit
Foreign Company Setup in India
0

A. Introduction And Applicable Provisions

Bonus shares are shares issued by a company to its existing shareholders free of cost, in proportion to the number of shares already held by them. The issue of bonus shares does not involve any cash outflow from shareholders; instead, it represents capitalization of the company’s accumulated profits or reserves. Companies planning bonus issuances, especially those with foreign investors, must ensure compliance with regulations governing foreign companies’ subsidiaries in India. Bonus shares reflect the company’s strong financial position and enhance shareholder confidence without diluting ownership.

Bonus shares can be issued out of:

Free reserves
Securities premium account
Capital redemption reserve

Section 63 of the Companies Act, 2013, and Companies (Share Capital and Debentures) Rules, 2014, govern the issue of bonus shares. The Foreign Exchange Management Act (FEMA), 1999, regulates the issue of shares to Non-Resident Indians (NRIs) and other non-resident individuals. Bonus shares can be issued to non-residents on a non-repatriation or repatriation basis, depending on original shareholding.

B. Conditions For Issue Of Bonus Shares

As per the Companies Act, 2013, no company shall issue bonus shares unless:

(a) It is authorised by its articles.

(b) It has been authorized by the shareholders in a general meeting.

(c) it has not defaulted in the payment of interest or principal in respect of fixed deposits or debt securities, if any;

(d) It has not defaulted in the payment of statutory dues of the employees, such as contributions to the provident fund, gratuity, and bonus.

(e) Any partly paid-up shares have been made fully paid up on the date of allotment.

It is important to note:

Bonus shares shall not be issued in lieu of a dividend.
The company that has announced a bonus issue shall not subsequently withdraw it.

C. Process Of Issuing Bonus Shares To Residents And Non-Residents

The process for issuing bonus shares is broadly similar for resident and non-resident shareholders; however, additional compliance is required for non-residents under foreign company subsidiary compliance in India regulations.

Send notice of Board Meeting at least 7 days prior, ensuring alignment with foreign company subsidiary compliance in India.

Convene a Board Meeting to consider the issue of bonus shares and fix the date, time, and agenda for a General Meeting, following proper corporate formalities and foreign company subsidiary compliance in India procedures.

Issue a notice of General Meeting to shareholders, ensuring compliance with regulatory requirements.

Conduct the general meeting to pass the necessary resolution, in accordance with foreign company subsidiary compliance in India.

File Form MGT-14 (if a special resolution is passed) within 30 days.

Approval from the RBI should be obtained for allotment to NRIs if outside the automatic route, following Fema Compliance for Foreign Companies in India.

Hold a Board Meeting to complete allotment formalities in proportion and manner as per the resolution.

File the return of allotment with the ROC in Form PAS-3 within 30 days.

FEMA reporting (Form FC-GPR) to RBI within 30 days for non-residents.

Obtain NSDL/CDSL approvals for demat issuance.

For physical shares, issue certificates within 60 days.

During this process, companies often consult an Indian Legal Consultant for Foreign Companies to ensure regulatory compliance and smooth allotment.

D. Benefits Of Issuing Bonus Shares

Benefits to the Company

Preservation of cash: Bonus shares reward shareholders without a cash outflow.
Improved market perception: More shares improve affordability and liquidity, aligning with foreign company subsidiary compliance in India.
Conversion of reserves: Accumulated free reserves are transferred into share capital, reflecting financial strength and adherence to foreign company subsidiary compliance in India.

Benefits to Shareholders

Increase in shareholding: Shareholders gain additional shares without investment.
Tax efficiency: No immediate tax implications at allotment.
Higher future returns: More shares can lead to increased dividend receipts, following foreign company subsidiary compliance in India.

E. Taxation, Benefits, and Impact

At the Time of issue: bonus shares are not taxable for shareholders, whether resident or non-resident. Thus, no tax liability arises at the time of allotment. Companies issuing bonus shares must ensure compliance with the foreign company subsidiary compliance in India principles.

At the Time of Sale: The Income-tax Act, 1961, contains provisions related to taxation of bonus shares at the time of sale and determination of capital gains. Capital gains tax arises when bonus shares are sold (Short-term capital gains (STCG) or Long-term capital gains (LTCG), depending on the holding period).

F. Applicability of FEMA (Non-debt Instruments) Rules, 2019:

As per Rule 7, a person resident outside India and having investment in an Indian company may make an investment in equity instruments issued by such company as a bonus issue, provided that:

The offer made by the Indian company is in compliance with the Companies Act, 2013.

Such an issue shall not result in a breach of the sectoral cap applicable to the company.

The shareholding on the basis of which the bonus issue has been made must have been acquired and held as per the provisions of applicable rules.

Such investment made through a bonus issue shall be subject to the conditions as are applicable at the time of such issue.

Recent Amendment:

The Ministry of Finance has amended FEMA (Non-Debt Instruments) Rules, 2019, through a notification dated June 11, 2025. As part of this amendment, Indian companies operating in FDI-prohibited sectors may issue bonus shares to their existing non-resident shareholders, following the guidelines of the Companies Act.

RBI reporting via the FIRMS portal in Form FC-GPR within 30 days of allotment ensures proper regulatory compliance for non-resident shareholders.

Conclusion

The issuance of bonus shares benefits both resident and non-resident shareholders, as well as the company. By capitalizing reserves, the company’s cash flow remains unaffected, ensuring financial stability while rewarding shareholders. The increase in shares often reduces per-share market value, enhancing affordability and liquidity.

Shareholders gain additional shares without cash outlay, and the overall market value of holdings can increase over time. Bonus shares are not taxable at the time of issue, making them attractive across jurisdictions.

Finally, the increase in paid-up capital strengthens the company’s financial base and demonstrates growth. Corporate legit ensures that all bonus share issuances comply with foreign company subsidiary compliance in India, reinforcing regulatory standards and shareholder confidence.

Frequently Asked Questions (FAQs)

1. Can bonus shares be issued to non-resident shareholders in India?

Yes, bonus shares can be issued to non-resident shareholders, including NRIs and foreign companies, provided the issuance complies with the Companies Act, 2013 and applicable FEMA regulations. The issuance must not breach sectoral caps and should follow prescribed reporting requirements.

2. Is RBI approval required for issuing bonus shares to foreign shareholders?

RBI approval is generally not required if the bonus issue falls under the automatic route. However, if the original investment or sector does not qualify for the automatic route, prior RBI approval may be necessary before allotting bonus shares to non-residents.

3. Are bonus shares taxable in India for resident and non-resident shareholders?

Bonus shares are not taxable at the time of allotment for both resident and non-resident shareholders. Tax liability arises only when the bonus shares are sold, and capital gains tax is applicable based on the holding period.

4. What FEMA reporting is required for bonus shares issued to non-residents?

When bonus shares are issued to non-resident shareholders, the company must report the allotment to the RBI through the FIRMS portal by filing Form FC-GPR within 30 days from the date of allotment.

5. Can companies in FDI-prohibited sectors issue bonus shares to foreign shareholders?

Yes. As per the June 11, 2025, amendment to the FEMA (Non-Debt Instruments) Rules, 2019, Indian companies operating in FDI-prohibited sectors may issue bonus shares to existing non-resident shareholders, provided the shareholding pattern remains unchanged.