# Foreign Company and Government Company

## 1. Foreign Company [Sec. 2(42)]

A foreign company means any body corporate incorporated outside India which:

1. Has a place of business in India — whether by itself, through an agent, or via physical or electronic mode; AND

2. Conducts any business activity in India in any manner.

> Both conditions must be satisfied — mere incorporation outside India is not enough.

## 2. Government Company [Sec. 2(45)]

A company in which ≥ 51% of the Paid-up Share Capital (PUSC) is held by:

The Central Government, OR
One or more State Government(s), OR
Partly by the Central and partly by State Government(s).

A subsidiary of a Government company is also a Government company.

### Important Points

Aspect	Rule
Differential Voting Rights (DVR)	If shares are issued with DVR, compute the 51% on total voting power, not on PUSC.
Name suffix exemption	Government companies are not required to use the suffix 'Pvt Ltd / Ltd' in their name.
Condition for exemption	They must not have defaulted in filing financial statements or annual returns.

Worked example

### Example 1

Example 1 — Foreign company: ABC Inc., incorporated in the USA, operates an e-commerce website serving Indian customers from servers located in India. → ABC Inc. is a foreign company — it has a place of business in India via electronic mode and conducts business activity here.

### Example 2

Example 2 — Government company: Central Govt holds 30% PUSC and State Govt of Maharashtra holds 25% PUSC of XYZ Ltd. → Total Govt holding = 55% ≥ 51%. XYZ Ltd is a Government company.

### Example 3

Example 3 — DVR scenario: A company has PUSC of ₹100 cr. CG holds shares worth ₹40 cr but with weighted voting rights amounting to 60% of total voting power. → Although PUSC holding is < 51%, voting power is ≥ 51%, so it qualifies as a Government company.

### Example 4

Example 4 — Foreign subsidiary not foreign company: An Indian company is 100% subsidiary of a US parent. The Indian company is incorporated in India. → It is not a foreign company — it is an Indian company (the parent is foreign).

⚠️ Common exam mistakes

Assuming any company with foreign shareholders is a 'foreign company' — the test is place of incorporation, not shareholding.
Forgetting that both conditions in Sec. 2(42) (place of business + business activity) must be met.
Using PUSC instead of voting power where DVR shares are issued.
Forgetting that 51% can be made up by Centre + State together.

Bare-Act text Sec. 2(42), 2(45) · Companies Act, 2013 · click to expand

Sec. 2(42) — 'foreign company' means any company or body corporate incorporated outside India which — (a) has a place of business in India whether by itself or through an agent, physically or through electronic mode; and (b) conducts any business activity in India in any other manner. Sec. 2(45) — 'Government Company' means any company in which not less than fifty-one per cent of the paid-up share capital is held by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments, and includes a company which is a subsidiary company of such a Government company.

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