Citizenship, Nationality and Residence of a Company

Second, "not a citizen" is not "no rights". A company holds the rights given to persons, and it holds its ordinary legal rights of property and contract under section 9 in full. Nothing about the citizenship rule weakens the company's separate personality.

2. What is a company's nationality? The country it was incorporated in.

A company's nationality follows its place of incorporation, and the Companies Act works on exactly that footing. Section 2(20) defines a company as one incorporated under this Act or under any previous company law, so an Indian company is an Indian company because it is on the Indian register.

Everything else is a foreign company. Section 2(42) defines it as:

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.

Note the two limbs. Being incorporated outside India is not by itself enough to make a body a "foreign company" for this Act; it must also have a place of business in India and conduct business activity here. A company in Singapore with no Indian presence is simply outside the Act.

3. Where does a company reside? Where it is really controlled.

Nationality is fixed once and for all at incorporation. Residence is a question of fact and can change, because it asks where the company's central control and management actually are. This is why an Indian-registered company may be resident abroad for a particular purpose, and why a foreign-registered company controlled from Mumbai may be treated as resident here.

The Act contains a striking illustration of the same instinct. Section 379(2) provides that where not less than fifty per cent of the paid-up share capital of a foreign company, whether equity or preference or partly both, is held by one or more citizens of India, or by one or more companies or bodies corporate incorporated in India, or by a combination of the two, whether singly or in the aggregate, that company shall comply with the provisions of this Chapter and such other provisions of this Act as may be prescribed with regard to the business carried on by it in India as if it were a company incorporated in India.

Read that carefully, because it is the most examinable sentence in this chapter. The company's nationality does not change. It remains incorporated outside India. What changes is the regulatory treatment: for its Indian business it is treated as if it were an Indian company. That is the law choosing substance over the register, and it is the same instinct that drives veil-lifting.

Section 379(1) sets the baseline: sections 380 to 386 and sections 392 and 393 apply to all foreign companies, whoever owns them.

A worked example

Harbour Analytics Pte Ltd is incorporated in Singapore. It opens an office in Andheri and sells software to Indian banks. Sixty per cent of its shares are held by two Indian citizens and by an Indian private company.

Is it a citizen of India? No, and neither would an Indian-registered company be. Citizenship is not available to any company.

What is its nationality? Singaporean. It was incorporated under Singapore law and that does not change because Indians bought its shares.

Is it a "foreign company" under this Act? Yes. It is incorporated outside India, it has a place of business in India, and it conducts business activity here, so section 2(42) is satisfied on both limbs.

What follows from the sixty per cent? Section 379(2) is triggered, because at least fifty per cent of the paid-up share capital is held by Indian citizens and an Indian company in the aggregate. So for the business it carries on in India it must comply with Chapter XXII and such other provisions as are prescribed as if it were an Indian company. Sections 380 to 386, 392 and 393 would have applied to it anyway under section 379(1).

Change one fact. If the Indian holding were forty per cent, section 379(2) would not bite, and only section 379(1) would apply. The company would still be a foreign company; it would simply carry a lighter load.

Distinctions that carry marks

What this does NOT mean

It does not mean a company has no constitutional protection. Rights given to "any person", such as Article 14, are available to it.

It does not mean shareholders lose their rights. They are citizens and their own fundamental rights survive the fact that they invested through a company.

It does not mean a foreign company escapes Indian law. Section 379(1) applies a defined set of provisions to every foreign company, and section 379(2) applies much more where the ownership is substantially Indian.

It does not mean nationality and residence are the same. Mixing them is the commonest error here. Nationality is fixed at incorporation; residence is a factual question about control.

Quick revision

• Citizen: no. A company is a juristic person, not a natural one, so it cannot claim Article 19 rights. It can claim rights given to "any person", such as Article 14.
• Shareholders: remain citizens and keep their own fundamental rights.
• Nationality: the country of incorporation. Section 2(20) for Indian companies.
• Foreign company: section 2(42), incorporated outside India, and has a place of business in India, and conducts business activity here.
• Section 379(1): sections 380 to 386, 392 and 393 apply to all foreign companies.
• Section 379(2): fifty per cent or more of the paid-up capital held by Indian citizens or Indian bodies corporate, singly or in the aggregate, means the company complies with Chapter XXII as if it were incorporated in India, for its Indian business.
• Residence: where central control and management are. A question of fact, and it can change.

Test yourself

1. Is a company a citizen of India? No. Citizenship is conferred on natural persons. A company is a juristic person, so it cannot claim the rights that Article 19 gives to citizens only, though it can claim rights given to any person, such as Article 14.

2. If a company cannot claim Article 19, is its business unprotected? No. The shareholders are citizens and may complain of state action that infringes their own fundamental rights, and the company retains its ordinary legal rights of property and contract under section 9.

3. Define a foreign company. Section 2(42): any company or body corporate incorporated outside India which has a place of business in India, whether by itself or through an agent, physically or through electronic mode, and conducts any business activity in India in any other manner.

4. A company incorporated in Dubai has seventy per cent of its shares held by Indian citizens and runs a branch in Pune. What is the consequence? Section 379(2) applies, because not less than fifty per cent of the paid-up share capital is held by Indian citizens. For the business it carries on in India it must comply with Chapter XXII and such other provisions as may be prescribed as if it were a company incorporated in India. Its nationality remains foreign.

5. Distinguish the nationality of a company from its residence. Nationality is fixed by the place of incorporation and does not change. Residence depends on where the central control and management of the company actually are, is a question of fact, and can change.