# Foreign Company and Government Company

## 1. Foreign Company — Sec. 2(42)

A Foreign Company means any body corporate incorporated outside India which:

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

(b) Conducts any business activity in India in any manner.

> Both conditions — (place of business) AND (business activity in India) — must be satisfied.

## 2. Government Company — Sec. 2(45)

A Government Company is a company in which ≥ 51% of the Paid-up Share Capital is held by:

The Central Government, OR
One or more State Governments, OR
Partly by the Central Government and partly by one or more State Governments.

Includes a subsidiary of a Government company.

### Important Notes

(a) Differential Voting Rights (DVR):

If shares are issued with Differential Voting Rights, then total voting power (not merely PUSC) is the relevant criterion for the 51% test.

(b) Exemption from Suffix Requirement:

Government companies are NOT required to use the suffix 'Private Limited' or 'Limited' in their name — provided they have not defaulted in filing:

Financial statements, or
Annual returns.

Worked example

### Example 1

Example (Foreign Company): ABC Inc., a company incorporated in the USA, runs an e-commerce website serving Indian customers and delivers goods to India through electronic mode, but has no physical office in India. Is it a foreign company?

Answer: Yes. The Act covers a place of business through electronic mode as well. Since ABC Inc. conducts business activity in India via electronic mode, it qualifies as a foreign company.

### Example 2

Example (Government Company): Central Government holds 30% of the PUSC of PQR Ltd., and the Government of Maharashtra holds 25%. Total = 55%. Is PQR a Government Company?

Answer: Yes. The Act permits combined holding of CG and SG(s). Combined holding = 55% (≥ 51%). Hence, PQR Ltd. is a Government Company.

### Example 3

Example (Subsidiary of Govt. Co.): XYZ Ltd. is a wholly-owned subsidiary of a Government Company. Is XYZ a Government Company?

Answer: Yes. The definition expressly includes a subsidiary of a Government Company.

⚠️ Common exam mistakes

Forgetting that 'place of business' covers electronic mode as well — a foreign company need not have a physical office in India.
Treating the 51% threshold as applying only to direct holdings — combined CG + SG holdings are aggregated.
Not counting subsidiaries of Government companies as Government companies themselves.
Ignoring the DVR exception — where DVR shares are issued, voting power (not PUSC alone) governs the 51% test.
Forgetting that the suffix exemption for Government companies is conditional on no default in filing financial statements or annual returns.

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

Section 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. Section 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.

Now that you've read this — what's next?

Move from understanding → mastery in 3 clicks. Each option below picks up from this lesson's topic.

🔥 Drill 5 Qs on this → ✍️ Adaptive practice →

Foreign Company and Government Company [Sec. 2(42) & 2(45)]

Worked example

⚠️ Common exam mistakes