Setting up a Subsidiary Company in Single and Multi-Brand Retail Trading in India

Setting up a Subsidiary Company in Single and Multi-Brand Retail Trading in India. The Indian retail market is estimated to be worth $1.3 trillion in 2022-23, growing with an average CAGR of 9% annually. As one of the fastest growing economies of the world and with the largest population, India offers unique opportunities for retail businesses. In this post, Compliance Calendar simplifies the process of bringing your single and Multi brand retail trading business to India by way of a subsidiary company registration. We also highlight distinct advantages and foreign investment repercussions for both single-brand retail trading and multi-brand retail trading in India.
Single-Brand Retail Trading - Understanding what it is?
In the Indian market, there are several companies offering products under a single-brand name, stocking products belonging to the brand itself, such as Apple stores, Zara, Puma, Nike stores, H&M or Marks & Spencer outlets.
Permissible FDI in Single-Brand Retail Trading in India
The government of India allows FDI in India via two routes. The automatic route and the government approval route. In the former, FDI is freely allowed in the country with no involvement of RBI or government approvals. However, in case the FDI intended is above the threshold allowed for automatic route, the government’s prior approval is necessary. India has allowed 100% FDI in single-brand retail trading through the automatic route, which means that foreign retailers can invest in this sector without the need for government approval.

Ownership Percentage: Foreign retailers can own the entire equity in the brand, with up to 100% of the equity in single-brand retail ventures in India. This means that they can fully own and operate their retail businesses in the country with complete equity control.

Automatic Route and RBI compliance: FDI in single-brand retail trading falls under the automatic route, and hence businesses are required to comply with Foreign Exchange & Management Act, and notify the Reserve Bank of India (RBI) by way of FLA Reporting.

Local Sourcing Requirements for foreign investments in Single brand retail trading after the year 2019: In order to promote local manufacturing and sourcing, the government of India has introduced a local sourcing requirement applicable specifically to businesses operating as single-brand retailers. Single-brand retailers with more than 51% FDI must source at least 30% of the value of goods purchased from India, preferably from small and medium enterprises (SMEs), artisans, and craftsmen. This requirement can be met over a period of time, initially being relaxed for the first five years of operation.

Online presence allowed since 2019: Through a major amendment in 2019 giving relief to single-brand retail trading units, the government has allowed single-brand retailers to start online sales, waiving the previously existing condition that required setting up a mandatory brick and mortar store. This has enabled standalone brands to register websites with their own domain names and engage in online sales, without requiring physical stores.

Branding compliance: Single-brand retailers are allowed to sell products only under a chosen brand name. However, this can include products that are produced by the foreign investor themselves or sourced through a third-party manufacturer. All packaging and labels must conform to the provisions of the Legal Metrology Act, which specifies packaging specifications.

Benefits of Single Brand Retail Trading

Brand Identity and Consumer centricity: Single-brand retail stores having a dedicated space for showcasing and promoting their specific brand's products are able to curate a more specialised shopping experience for customers. This also allows the brand to establish a distinct identity and communicate its values and story directly to consumers.

Protecting Intellectual Property: Having a single-brand retail store makes it more imperative that the business is registered with its own trademark, having control over intellectual property including designs, colour themes and brand names. These should ideally also be incorporated in the store design, layout, and customer service, reinforcing the brand's uniqueness.

Pricing controls: In the single-brand retail trading, businesses have full control over the entire inventory. As a result, operating under single-brand retail trading gives greater control over pricing strategies by way of retail outlets or online sales, ensuring that prices are aligned with the brand's perceived value.

Entering into the Indian market for international brands with local adaptations: Single-brand retail trade provides a platform for international brands to enter new markets and reach consumers who might not be familiar with their products. It also gives greater chance for single brand retail trading units to offer their products tailored to local tastes, preferences, and cultural nuances of the Indian market.

Multi-Brand Retail Trading - Understanding the term
Large retail stores that stock diverse brands under the roof of a single store are categorised as Multi-brand retail trading outlets. This includes hypermarket chains such as Big Bazaar, Reliance Retail, Shoppers Stop, Westside, Lifestyle, HyperCity etc.
FDI Restrictions in Multi-brand retail trading in India
The Indian government has permitted up to 51% FDI in multi-brand retail, subject to certain conditions and approvals.

State level exemptions and restrictions - The government policy states that the below mentioned restrictions are only suggestive, and the respective state governments in India are free to take their own decisions with regard to implementation of the policy. Thus, retail units can be set up in respective states that have agreed to allow FDI in Multi-brand retail trading.

The following conditions are required to be observed with respect to FDI in Multi-brand retail trading in India:

Agricultural produce can only be unbranded - Fresh agricultural produce, including fruits, vegetables, flowers, grains, pulses, fresh poultry,fishery and meat products, may be unbranded.

Minimum amount - Minimum amount to be brought in, as FDI, by the foreign investor, would be USD 100 million.

Requirement of using FDI for capital investment - At least 50% of the FDI brought in the first tranche of USD 100 million has to be invested in the back-end infrastructure within three years. This is allowable for activities such as - processing, manufacturing, distribution, design improvement, quality control, packaging, logistics, storage, ware-house and agriculture market produce infrastructure. Expenses on land would not be counted as backend infrastructure.

Local sourcing from Micro, Small and Medium Industries- At least 30% of the value of manufactured products should be sourced from MSMEs. Sourcing from agricultural co-operatives and farmers’ co-operatives would also be considered in this category.

Self-certification by the business is necessary, and investors should maintain accounts duly certified by statutory auditors.

Restriction on retail sales outlets for Multi-brand retail trading
Retail sales outlets can be set up only in cities with a population of more than 10 lakh as per 2011 Census or any other cities as per the decision of the respective State Governments, and may also cover an area of 10 kms around the municipal/urban agglomeration limits of such cities. The retail locations are restricted to areas as per the Master/Zonal Plans of the concerned cities and provisions will be made for requisite facilities such as transport connectivity and parking.
Restriction on E-commerce
Retail trading, in any form, by means of e-commerce, would not be permissible, for companies with FDI, engaged in the activity of multi-brand retail trading.
Benefits of Multi-brand retail trading in India

Enhanced access to retail: Multi-brand retail stores provide consumers with a wide range of products from various brands. This variety allows consumers to choose from different price points, styles, and quality levels, catering to diverse preferences.

Competitive space due to multiplicity of brands: The presence of multiple brands in a single store fosters healthy competition among brands. Brands strive to offer better quality, competitive pricing, and innovative products to attract consumers.

Infrastructural efficiency: Multi-brand retail chains can leverage economies of scale by centralising procurement, distribution, and supply chain management.

Enhanced FDI and Investment: Opening up multi-brand retail to foreign direct investment brings global retailers with the best of expertise, products and services to invest in India. This presents direct gains in the form of enhanced infrastructural development, revenues and better access to global-level goods and services.

Incorporation of the Subsidiary Company in India
Entering into the Indian market by way of a 100% owned subsidiary in the retail segment can be helpful due to its distinct advantages. This includes operational flexibility, greater control on the business, as well as taxation and other advantages.
The process of incorporating a subsidiary company in India for your single-brand retail trading and Multi-brand retail trading is as follows:

The first step for entering the Indian market is to incorporate a subsidiary company in India. The regulating law for companies in India is the Companies Act, 2013 and its associated rules.

You need to register the company with the Registrar of Companies (ROC) under the Companies Act, 2013. Compliance Calendar has assisted thousands of companies in niche industries in filing for incorporation successfully.

The process requires obtaining a Digital Signature Certificate (DSC) and Director Identification Number (DIN) for the proposed directors. There must be at least one Resident Indian director on the board.

The draft of the company's Memorandum of Association (MOA) - enlisting specifics of the e-commerce business that the company plans to engage in, and Articles of Association (AOA) regulating the internal procedures, alongside necessary forms (that includes name, registered address, capital limits etc) has to be filed with the Registrar of Companies.

An Advanced Reporting Form needs to be filed with the RBI, when share capital is subscribed to, by foreign entities. Filing of Form FC-GPR with RBI must be done within 30 days from date of allotment of shares to subscribers/foreign holding company.

Apostillation and Notarisation requirements for foreign subsidiary company in India 
Apostillation refers to the process of certifying foreign company documents issued outside India for use within India. The following are the compliance requirements in this regard:

Translation of incorporation or registration certificates in English.

Copy of ID Proof of each authorised representative in India and number of shares subscribed by them

Copy of Charter of the Foreign Company

Form DIR-2 for consent to act as director, to be signed by each director.

NOC on the property, in case the property is on lease

Address Proof, such as rent agreement, lease deed along with copy of utility bills

For companies belonging to the Commonwealth : all signatures and addresses on MoA and AoA and proof of identity must be notarised by a Notary (Public) in that part of the Commonwealth.

For countries which are parties to Hague Apostille Convention of countries : the signatures and addresses on MoA and AoA must be notarised by the Notary (Public) of the country of his origin and be duly apostilled in accordance with Hague Convention.

For countries outside the Commonwealth and Hague Apostille Convention: the signatures and address on the memorandum and articles of association and proof of identity shall be notarized before the Notary (Public) of such country and the certificate of the Notary (Public) shall be authenticated by a Diplomatic or Consular Officer.

Post-registration compliance requirements for single brand and multi-brand retail trade foreign subsidiary company in India
After registering a company in India, there are several compliance requirements that need to be fulfilled to ensure legal and regulatory adherence. Here are some key post-registration compliance obligations for foreign subsidiary companies in India, receiving FDI under permissible rules:

Filing Forms for beneficial ownership: Forms MGT-4, MGT-5 and MGT-6. All of these forms entail providing information on beneficial share ownership. Form MGT-4 with beneficial interest in any share along with a covering letter must be filed within one month from date of acquisition. While BEN-2 is for significant beneficial ownership change, i.e., indirect holding along with direct holding. MGT-6 is for beneficial indirect ownership. Even a single share held by a registered member on behalf of someone else will trigger the requirement for filing of MGT - 6. This must be done within 30 days of the date of receipt of declaration.

Form DIR-2 : for directors consent.

Form INC-9: for declaration by the first subscribers and directors.

INC-20 A: This is a mandatory form, required for obtaining a certificate of Commencement of Business. It must be filed within 180 days of the date of incorporation. A bank statement evidencing the receipt of subscription money by the company is necessary.

Documents required for filing form FC-GPR with RBI:

Board Resolution for Allotment of Shares / Compulsorily Convertible Preference Shares (CCPS)/ Compulsorily Convertible Debentures (CCD)

Memorandum of Association of the company in case the shares are allotted for the subscription to the Memorandum of Association (MOA)

Foreign Inward remittance Certificate (FIRC) from AD Bank

KYC from AD Bank

Valuation certificate regarding the value of shares from the Chartered Accountant

CS Certificate in the prescribed format

Declaration by Authorized representative of the Company

Debit Authorisation for debiting charges from the Bank

Declaration regarding issue price by the directors of the Company

Reason for delay in submission, if any

FLA Reporting to the RBI: The FLA return must be filed by Indian companies and LLPs receiving FDI during the current year. This form needs to be filed by July 15 of the subsequent financial year.

Compliance with the Consumer Protection Act: Under the Rule 4(2) of the Consumer Protection Act, 2019 the following is the list of disclosures that the e-commerce entity must mandatorily provide:

The legal name of the entity

Geographic address of the entity’s headquarters and all branches

Name and details of its website; and

Contact details of the entity, which include customer care numbers, email address, and information about any grievance officer.

The Consumer Rules also requires e-commerce entities to hire a Nodal Officer, who is a resident of India, and this Officer’s role shall be to ensure proper compliance with the Consumer Protection Rules.

Compliance with Shops & Establishments Act: All retail units in India have to comply with state level rules, as well as the Shops & Establishments Act for the specific state of operation. This includes labour law compliances that prescribe intervals of rest, occupational hazards and safety regulations.

Compliance with Legal Metrology Act: As per Rules framed under the e Legal Metrology Act, the following is the list of the declarations that are to be made:

Name and address of the manufacturer

Country of origin of the product

Common/generic name of the product

Net quantity

Best before/use date (wherever applicable)

Maximum Retail Price (which should also mention the words “Inclusive of all taxes”)

Dimensions of the product/commodity.

Concluding Remarks
Compliance with FDI norms, commercial and consumer laws in India are the foundational elements of setting up a successful retail business in India. Having assisted niche corporate clientele in drafting user-agreements, incorporating a foreign subsidiary company in India and securing IPR, Compliance Calendar’s bouquet of services can make setting up your single brand and multi-brand retail venture hassle-free.

The Indian retail market is estimated to be worth $1.3 trillion in 2022-23, growing with an average CAGR of 9% annually. As one of the fastest growing economies of the world and with the largest population, India offers unique opportunities for retail businesses. In this post, Compliance Calendar simplifies the process of bringing your single and Multi brand retail trading business to India by way of a subsidiary company registration. We also highlight distinct advantages and foreign investment repercussions for both single-brand retail trading and multi-brand retail trading in India.

Single-Brand Retail Trading - Understanding what it is?

In the Indian market, there are several companies offering products under a single-brand name, stocking products belonging to the brand itself, such as Apple stores, Zara, Puma, Nike stores, H&M or Marks & Spencer outlets.

Permissible FDI in Single-Brand Retail Trading in India

The government of India allows FDI in India via two routes. The automatic route and the government approval route. In the former, FDI is freely allowed in the country with no involvement of RBI or government approvals. However, in case the FDI intended is above the threshold allowed for automatic route, the government’s prior approval is necessary. India has allowed 100% FDI in single-brand retail trading through the automatic route, which means that foreign retailers can invest in this sector without the need for government approval.

Ownership Percentage: Foreign retailers can own the entire equity in the brand, with up to 100% of the equity in single-brand retail ventures in India. This means that they can fully own and operate their retail businesses in the country with complete equity control.
Automatic Route and RBI compliance: FDI in single-brand retail trading falls under the automatic route, and hence businesses are required to comply with Foreign Exchange & Management Act, and notify the Reserve Bank of India (RBI) by way of FLA Reporting.
Local Sourcing Requirements for foreign investments in Single brand retail trading after the year 2019: In order to promote local manufacturing and sourcing, the government of India has introduced a local sourcing requirement applicable specifically to businesses operating as single-brand retailers. Single-brand retailers with more than 51% FDI must source at least 30% of the value of goods purchased from India, preferably from small and medium enterprises (SMEs), artisans, and craftsmen. This requirement can be met over a period of time, initially being relaxed for the first five years of operation.
Online presence allowed since 2019: Through a major amendment in 2019 giving relief to single-brand retail trading units, the government has allowed single-brand retailers to start online sales, waiving the previously existing condition that required setting up a mandatory brick and mortar store. This has enabled standalone brands to register websites with their own domain names and engage in online sales, without requiring physical stores.
Branding compliance: Single-brand retailers are allowed to sell products only under a chosen brand name. However, this can include products that are produced by the foreign investor themselves or sourced through a third-party manufacturer. All packaging and labels must conform to the provisions of the Legal Metrology Act, which specifies packaging specifications.

Benefits of Single Brand Retail Trading

Brand Identity and Consumer centricity: Single-brand retail stores having a dedicated space for showcasing and promoting their specific brand's products are able to curate a more specialised shopping experience for customers. This also allows the brand to establish a distinct identity and communicate its values and story directly to consumers.
Protecting Intellectual Property: Having a single-brand retail store makes it more imperative that the business is registered with its own trademark, having control over intellectual property including designs, colour themes and brand names. These should ideally also be incorporated in the store design, layout, and customer service, reinforcing the brand's uniqueness.
Pricing controls: In the single-brand retail trading, businesses have full control over the entire inventory. As a result, operating under single-brand retail trading gives greater control over pricing strategies by way of retail outlets or online sales, ensuring that prices are aligned with the brand's perceived value.
Entering into the Indian market for international brands with local adaptations: Single-brand retail trade provides a platform for international brands to enter new markets and reach consumers who might not be familiar with their products. It also gives greater chance for single brand retail trading units to offer their products tailored to local tastes, preferences, and cultural nuances of the Indian market.

Multi-Brand Retail Trading - Understanding the term

Large retail stores that stock diverse brands under the roof of a single store are categorised as Multi-brand retail trading outlets. This includes hypermarket chains such as Big Bazaar, Reliance Retail, Shoppers Stop, Westside, Lifestyle, HyperCity etc.

FDI Restrictions in Multi-brand retail trading in India

The Indian government has permitted up to 51% FDI in multi-brand retail, subject to certain conditions and approvals.

State level exemptions and restrictions - The government policy states that the below mentioned restrictions are only suggestive, and the respective state governments in India are free to take their own decisions with regard to implementation of the policy. Thus, retail units can be set up in respective states that have agreed to allow FDI in Multi-brand retail trading.

The following conditions are required to be observed with respect to FDI in Multi-brand retail trading in India:

Agricultural produce can only be unbranded - Fresh agricultural produce, including fruits, vegetables, flowers, grains, pulses, fresh poultry,fishery and meat products, may be unbranded.
Minimum amount - Minimum amount to be brought in, as FDI, by the foreign investor, would be USD 100 million.
Requirement of using FDI for capital investment - At least 50% of the FDI brought in the first tranche of USD 100 million has to be invested in the back-end infrastructure within three years. This is allowable for activities such as - processing, manufacturing, distribution, design improvement, quality control, packaging, logistics, storage, ware-house and agriculture market produce infrastructure. Expenses on land would not be counted as backend infrastructure.
Local sourcing from Micro, Small and Medium Industries- At least 30% of the value of manufactured products should be sourced from MSMEs. Sourcing from agricultural co-operatives and farmers’ co-operatives would also be considered in this category.
Self-certification by the business is necessary, and investors should maintain accounts duly certified by statutory auditors.

Restriction on retail sales outlets for Multi-brand retail trading

Retail sales outlets can be set up only in cities with a population of more than 10 lakh as per 2011 Census or any other cities as per the decision of the respective State Governments, and may also cover an area of 10 kms around the municipal/urban agglomeration limits of such cities. The retail locations are restricted to areas as per the Master/Zonal Plans of the concerned cities and provisions will be made for requisite facilities such as transport connectivity and parking.

Restriction on E-commerce

Retail trading, in any form, by means of e-commerce, would not be permissible, for companies with FDI, engaged in the activity of multi-brand retail trading.

Benefits of Multi-brand retail trading in India

Enhanced access to retail: Multi-brand retail stores provide consumers with a wide range of products from various brands. This variety allows consumers to choose from different price points, styles, and quality levels, catering to diverse preferences.
Competitive space due to multiplicity of brands: The presence of multiple brands in a single store fosters healthy competition among brands. Brands strive to offer better quality, competitive pricing, and innovative products to attract consumers.
Infrastructural efficiency: Multi-brand retail chains can leverage economies of scale by centralising procurement, distribution, and supply chain management.
Enhanced FDI and Investment: Opening up multi-brand retail to foreign direct investment brings global retailers with the best of expertise, products and services to invest in India. This presents direct gains in the form of enhanced infrastructural development, revenues and better access to global-level goods and services.

Incorporation of the Subsidiary Company in India

Entering into the Indian market by way of a 100% owned subsidiary in the retail segment can be helpful due to its distinct advantages. This includes operational flexibility, greater control on the business, as well as taxation and other advantages.

The process of incorporating a subsidiary company in India for your single-brand retail trading and Multi-brand retail trading is as follows:

The first step for entering the Indian market is to incorporate a subsidiary company in India. The regulating law for companies in India is the Companies Act, 2013 and its associated rules.
You need to register the company with the Registrar of Companies (ROC) under the Companies Act, 2013. Compliance Calendar has assisted thousands of companies in niche industries in filing for incorporation successfully.
The process requires obtaining a Digital Signature Certificate (DSC) and Director Identification Number (DIN) for the proposed directors. There must be at least one Resident Indian director on the board.
The draft of the company's Memorandum of Association (MOA) - enlisting specifics of the e-commerce business that the company plans to engage in, and Articles of Association (AOA) regulating the internal procedures, alongside necessary forms (that includes name, registered address, capital limits etc) has to be filed with the Registrar of Companies.
An Advanced Reporting Form needs to be filed with the RBI, when share capital is subscribed to, by foreign entities. Filing of Form FC-GPR with RBI must be done within 30 days from date of allotment of shares to subscribers/foreign holding company.

Apostillation and Notarisation requirements for foreign subsidiary company in India

Apostillation refers to the process of certifying foreign company documents issued outside India for use within India. The following are the compliance requirements in this regard:

Translation of incorporation or registration certificates in English.
Copy of ID Proof of each authorised representative in India and number of shares subscribed by them
Copy of Charter of the Foreign Company
Form DIR-2 for consent to act as director, to be signed by each director.
NOC on the property, in case the property is on lease
Address Proof, such as rent agreement, lease deed along with copy of utility bills
For companies belonging to the Commonwealth : all signatures and addresses on MoA and AoA and proof of identity must be notarised by a Notary (Public) in that part of the Commonwealth.
For countries which are parties to Hague Apostille Convention of countries : the signatures and addresses on MoA and AoA must be notarised by the Notary (Public) of the country of his origin and be duly apostilled in accordance with Hague Convention.

For countries outside the Commonwealth and Hague Apostille Convention: the signatures and address on the memorandum and articles of association and proof of identity shall be notarized before the Notary (Public) of such country and the certificate of the Notary (Public) shall be authenticated by a Diplomatic or Consular Officer.

Post-registration compliance requirements for single brand and multi-brand retail trade foreign subsidiary company in India

After registering a company in India, there are several compliance requirements that need to be fulfilled to ensure legal and regulatory adherence. Here are some key post-registration compliance obligations for foreign subsidiary companies in India, receiving FDI under permissible rules:

Filing Forms for beneficial ownership: Forms MGT-4, MGT-5 and MGT-6. All of these forms entail providing information on beneficial share ownership. Form MGT-4 with beneficial interest in any share along with a covering letter must be filed within one month from date of acquisition. While BEN-2 is for significant beneficial ownership change, i.e., indirect holding along with direct holding. MGT-6 is for beneficial indirect ownership. Even a single share held by a registered member on behalf of someone else will trigger the requirement for filing of MGT - 6. This must be done within 30 days of the date of receipt of declaration.

Form DIR-2 : for directors consent.
Form INC-9: for declaration by the first subscribers and directors.

INC-20 A: This is a mandatory form, required for obtaining a certificate of Commencement of Business. It must be filed within 180 days of the date of incorporation. A bank statement evidencing the receipt of subscription money by the company is necessary.

Documents required for filing form FC-GPR with RBI:

Board Resolution for Allotment of Shares / Compulsorily Convertible Preference Shares (CCPS)/ Compulsorily Convertible Debentures (CCD)
Memorandum of Association of the company in case the shares are allotted for the subscription to the Memorandum of Association (MOA)
Foreign Inward remittance Certificate (FIRC) from AD Bank
KYC from AD Bank
Valuation certificate regarding the value of shares from the Chartered Accountant
CS Certificate in the prescribed format
Declaration by Authorized representative of the Company
Debit Authorisation for debiting charges from the Bank
Declaration regarding issue price by the directors of the Company
Reason for delay in submission, if any

FLA Reporting to the RBI: The FLA return must be filed by Indian companies and LLPs receiving FDI during the current year. This form needs to be filed by July 15 of the subsequent financial year.

Compliance with the Consumer Protection Act: Under the Rule 4(2) of the Consumer Protection Act, 2019 the following is the list of disclosures that the e-commerce entity must mandatorily provide:

The legal name of the entity

Geographic address of the entity’s headquarters and all branches
Name and details of its website; and
Contact details of the entity, which include customer care numbers, email address, and information about any grievance officer.
The Consumer Rules also requires e-commerce entities to hire a Nodal Officer, who is a resident of India, and this Officer’s role shall be to ensure proper compliance with the Consumer Protection Rules.

Compliance with Shops & Establishments Act: All retail units in India have to comply with state level rules, as well as the Shops & Establishments Act for the specific state of operation. This includes labour law compliances that prescribe intervals of rest, occupational hazards and safety regulations.

Compliance with Legal Metrology Act: As per Rules framed under the e Legal Metrology Act, the following is the list of the declarations that are to be made:

Name and address of the manufacturer
Country of origin of the product
Common/generic name of the product
Net quantity
Best before/use date (wherever applicable)
Maximum Retail Price (which should also mention the words “Inclusive of all taxes”)
Dimensions of the product/commodity.

Concluding Remarks

Compliance with FDI norms, commercial and consumer laws in India are the foundational elements of setting up a successful retail business in India. Having assisted niche corporate clientele in drafting user-agreements, incorporating a foreign subsidiary company in India and securing IPR, Compliance Calendar’s bouquet of services can make setting up your single brand and multi-brand retail venture hassle-free.