September 10, 2024

Starting a subsidiary company in India can be a great way to expand your business and tap into new marketsA subsidiary company is a company whose control lies with another company. The company that holds the control is termed as a Parent Company or Holding Company. The Holding company owns a majority of the shares of the subsidiary company, and hence it can exercise control as the major shareholder. The holding company holds an interest in the subsidiary company. The company in which the holding company holds 100% share capital is termed as a wholly-owned subsidiary. The subsidiary company can be either established or acquired by the holding company. Subsidiary Company As per Section 2 (87) of the Companies Act 2013, a subsidiary company” or “subsidiary”, in relation to any other company (that is to say the holding company), means a company in which the holding company:  (i) controls the composition of the Board of Directors; or (ii) exercises or controls more than one-half of the total share capital Either at its own or together with one or more of its subsidiary companies:Provided that such class or classes of holding companies as may be prescribed shall not have layers of subsidiaries beyond such numbers as may be prescribed.  Explanation- For the purposes of this clause— (a) a company shall be deemed to be a subsidiary company of the holding company even if the control referred to in sub-clause (i) or sub-clause (ii) is of another subsidiary company of the holding company; (b) the composition of a company’s Board of Directors shall be deemed to be controlled by another company if that other company by exercise of some power exercisable by it at its discretion can appoint or remove all or a majority of the directors; (c) the expression “company” includes any body corporate; (d) “layer” in relation to a holding company means its subsidiary or subsidiaries.   The above definition includes all the below mentioned types of holdings: Company A holds more than 50% of the share capital in Company B. Company A holds the power to appoint or remove the majority of the directors of Company B. Company A holds more than 50 % share capital in Company B; Company B holds more than 50% share capital in Company C, then Company A is Holding company to both B and C. Company X holds rights to modify the structure of directorship of Company Y; Company Y holds similar rights in company Z, then company X is the parent company to both Y and Z. Types of Subsidiaries in India Wholly-Owned Subsidiary- In a wholly-owned subsidiary, the parent company possesses 100% ownership of the subsidiary’s shares. However, it’s important to note that wholly-owned subsidiaries can only be established in sectors that permit 100% Foreign Direct Investment (FDI). Subsidiary Company- In this category of subsidiary, the parent company owns 50% of the subsidiary’s shares. Before proceeding with establishing a foreign subsidiary company in india, obtaining approval from the Reserve Bank of India is a crucial prerequisite. This regulatory step ensures compliance with the country’s foreign investment regulations and safeguards the interests of all stakeholders involved. Registration of a Subsidiary Company Application in the prescribed form: SPICe+ Form, which is an integrated form for the reservation of name and other services, is to be filled for the registration of subsidiary companies.SPICe+ form has two parts: – Part A – Name Reservation (New Companies) Part B: 1. Incorporation of Company 2. Application For DIN 3. PAN and TAN Application 4. EPFO and ESIC Registration 5. GSTIN Application 6. Bank Account Opening 7. Professional Tax Registration(Applicable to Companies in Maharashtra) Document upload a. Company Related – Memorandum of Association and Articles of Association – Proof of Address of registered place of Business that is if the rented property, then rent agreement and if the owned property then copy of ownership documents – Copy of Utility Bills – Copy of resolution passed by the promoter company – Capital Layout of company – Copy of certificate of incorporation in case of foreign corporate b. Directors and Shareholders Related – Digital Signature Certificate (DSC) and Director Identification Number (DIN) for the directors and designated shareholders – Proof of identity and address for Directors and Shareholders – Photographs of Directors and Shareholders – The interest of first directors in other entities. – Declaration by Directors and Shareholders Advantages of Indian Subsidiary Company Entry into the Indian Market- India’s competitive environment offers a plethora of investment opportunities that attract foreign entrepreneurs to establish their subsidiary companies in the country. Foreign Direct Investment (FDI) in India- FDI involves investments by foreign companies in Indian private companies through share subscriptions or acquisitions. In 2020, the Indian government introduced a provision requiring prior approval for investments from countries sharing a border with India, making Indian subsidiary registration an attractive option for foreign investors. Perpetual Succession- The concept of perpetual succession ensures that a company’s existence remains intact regardless of events like changes in management, transfers of membership, or insolvency. The company continues to operate seamlessly, providing stability and continuity. Limited Liability- Limited liability is a significant advantage that encourages individuals to opt for company formation over other business structures. This principle extends to Indian subsidiary companies, protecting the personal assets of shareholders and directors. The company bears responsibility for its debts to third parties, shielding the personal assets of its stakeholders. Scope of Diversification- Establishing an Indian subsidiary company provides a strategic avenue for foreign businesses to expand their operations. This contributes to the growth and development of the Indian economy and introduces a wide range of goods and services, fostering healthy competition. Separate Legal Identity- According to the Companies Act, a company is recognized as a distinct legal entity separate from its shareholders and directors. This legal status empowers the company to engage in agreements with other competent entities as an artificial legal person. It also grants the company the ability to initiate legal actions and respond to allegations before the judicial system in its own name, without direct involvement from its members or directors. Property Ownership and Rental- A subsidiary company, being a legal

Recently, the National Company Law Appellate Tribunal, New Delhi (“NCLAT”) passed a judgment dealing with the provisions of Section 203 of the Companies Act, 2013 (“Act”). The appellants, i.e. the Hamlin Trust, and others (“Appellants”) are shareholders of Rattan India Finance Private Limited (“Company”) holding 50% of the share capital of the Company. LSFIO Rose Investments S.a.r.l., a company incorporated under the laws of Luxembourg (“Respondent”) also acquired the 50% share capital of the Company. In terms of the Articles of Association (“AoA”) of the Company, the Respondent had a right to nominate a person to the position of chief financial officer of the Company (“CFO”). In the event the other shareholders, i.e., Respondent reject the appointment of such nominee to the position of CFO, Appellants shall have the right to nominate another person to the position of CFO. Further, in the event the Respondents reject the appointment of the second such person nominated by Appellants to the position of the CFO or at least (forty-five) days have passed since the position of CFO was vacated (whichever is earlier), Appellants shall have the right to nominate any person to the position of CFO and the Respondent shall support the appointment of such person as CFO. Definition of KMP Under the Companies Act, 2013 Section 2(51) of the Act defines Key Managerial Personnel (KMP). It states that the KMP of a company means: Chief Executive Officer, manager or Managing Director Company secretary Whole-Time Director Chief Financial Officer Such other officers, designated by the Board as KMP but are not more than one level below the directors in whole-time employment Such other officer as may be prescribed Chief Executive Officer, Manager or Managing Director The Chief Executive Officer and Managing Director are responsible for running the company. The Managing Director has authority over all company operations. They are also responsible for growing and innovating the company to a larger scale.  Under the Act, the Managing Director is defined as a director having substantial powers over the company management and its affairs. A Managing Director is appointed through any of the following means: By the Articles of Association  An agreement with the company  A resolution passed in a general meeting  By the company board of directors The Act defines a manager as the individual who manages the whole company affairs, subject to the board of directors’ direction, control and superintendence. A manager also includes a director or a person occupying a manager position in a company, even under a contract of service. However, a company cannot appoint a managing director and a manager at the same time. Company Secretary A company secretary is responsible for looking after the efficient administration of the company. They take care of the company’s compliance and regulatory requirements. They also ensure that the instructions and targets of the board are implemented.  As per the Act, a company secretary or secretary means a company secretary defined under Section 2 of the Company Secretaries Act, 1980. The Company Secretaries Act defines a Company Secretary as a person who is a member of the Institute of Company Secretaries of India (ICSI). The company secretary should ensure that the company complies with secretarial standards. Whole-Time Director  Under the Act, a Whole-Time Director is defined as a director who is in whole-time employment of the company. A Whole-Time Director means a director who works during the entire working hours of the company. They are different from an independent director as they are part of the daily operation and has a significant stake in the company. A Managing Director can also be a Whole-Time Director. Chief Financial Officer A Chief Financial Officer is responsible for handling the company’s financial status. They keep a tab on cash flow operations, create contingency plans for financial crises and do financial planning. They lead the treasury and financial functions of the company. Companies Required to Appoint KMP Section 203 of the Act provides that certain classes of companies must appoint the KMP, which includes the Managing Director or manager or Chief Executive Officer, company secretary and Chief Financial Officer. The company must appoint a whole-time director if it does not have a Chief Executive Officer, manager or Managing Director. Rule 8 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 provides the class of companies that must appoint the whole-time KMP, which are as follows: Every listed company A public company having a paid-up share capital of Rs.10 crore or more Further, a private company having a paid-up share capital of Rs.10 crore or more must appoint a whole-time company secretary.  Every whole-time KMP is appointed through a resolution of the board containing the conditions and terms of appointment, including remuneration. A whole-time KMP must not simultaneously hold office in more than one company except its subsidiary company. The board is responsible for filling the vacancies in the post of KMP within six months of the vacancy. A company can appoint or re-appoint a person as its managing director, whole-time director or manager for a maximum of five years. Roles and Responsibility of KMP The KMPs will be liable for non-compliance of the provisions provided under the Companies Act,2013. The management functions and the decisions of the company are the responsibility of the KMPs. As per section 170,detailed information of securities will be provided by KMPs and recorded in the register of the company. In the audit committee, the right to heard will be provided to KMPs while considering the audit report. But they don’t have the right to vote. AS per section 189(2), KMPs will disclose all their concerns and interest within 30 days of their appointment. Disqualifications for being KMP Section 196(3) of the Companies Act,2013 states that a company shall not appoint or continue the employment of a managing director, whole-time director, or manager  if such person: Not completed age of 21years or exceeds the age of 69 years. Is an uncharged insolvent or adjudged as an insolvent. Record of holding payments from creditors. Convicted

NABARD is a development financial institution in India that manages credit-related concerns like planning, policy, and operations for agriculture and rural undertakings. National Bank for Agriculture and Rural Development (NABARD) offers funds and credit facilities for agriculture-related activities and rural development. Its prime focus area is the growth and development of rural areas nationwide. NABARD works around three main areas that include finance, development, and supervision of the agriculture sector. Dairy Farming Scheme – The Prime Minister Animal Husbandry Scheme is a central government scheme. The main objective of the scheme is to promote dairy farming in India and to make it a viable and sustainable livelihood option for small and marginal farmers. The Prime Minister Animal Husbandry Scheme provides financial assistance to eligible farmers for the purchase of dairy cattle, construction of sheds and other infrastructure, and training. Under the scheme, each eligible farmer will be provided with a subsidy of up to ₹2 lakhs for the purchase of two dairy cows or buffaloes. In addition, a subsidy of ₹1 lakh will be provided for the construction of a shed and other infrastructure, and ₹50,000 for training. The total outlay for the scheme is ₹500 crores. The scheme is open to all Indian citizens who are small and marginal farmers with less than 2 hectares (5 acres) of landholding. Farmers can apply for the scheme through the online portal of the National Dairy Development Board (NDDB). Dairy Farming Plan Dairy farming is an important part of the agricultural sector in India. According to recent reports, the country has the world’s largest cattle population with 178 million cows and buffaloes. In order to increase milk production and improve the livelihoods of smallholder farmers, the National Bank for Agriculture and Rural Development (NABARD) has launched a new scheme called the Dairy Farming Plan. Under this scheme, NABARD will provide financial assistance to state governments and dairy cooperatives for the construction of new dairy plants and the upgrading of existing ones. The aim is to help India achieve self-sufficiency in milk production by. In addition, NABARD will also set up a ₹5,000 crore Dairy Infrastructure Fund to finance projects such as the construction of milking parlors, storage facilities, and chilling units. The scheme is expected to benefit 3 million smallholder farmers and create employment opportunities for 1.5 million people. NABARD Subsidy for Dairy To promote setting up of modern dairy farms for the production of clean milk To encourage heifer calf rearing thereby conserve good breeding stock To bring structural changes in the unorganized sector so that initial processing of milk can be taken up at the village level itself. To bring about up-gradation of quality and traditional technology to handle milk on a commercial scale To generate self-employment and provide infrastructure mainly for unorganized sector. NABARD Dairy Farming Subsidy Eligibility The following types of persons and association of persons are eligible for receiving the NABARD Dairy Farming Subsidy: Farmers Individual Entrepreneurs NGOs Companies Groups of unorganized and organized sector etc. Groups of the organized sector include Self Help Groups, Dairy Cooperative Societies, Milk Unions, Milk Federations, etc. However, an individual will be eligible to avail the dairy subsidy for all the components under the scheme but only once for each component. Further, if more than one member of a family must avail the dairy farming subsidy, they must set up separate units with separate infrastructure at different locations. The distance between the boundaries of two such farms should be at least 500m. Beneficiaries of Dairy Farming Scheme Eligible beneficiaries include small and marginal farmers, landless laborers, women farmers, and members of scheduled castes/scheduled tribes. Farmers can avail up to 90% loan amount as subsidy from NABARD. The interest rate on the loan is 4% per annum. The maximum loan amount under the scheme is ₹3 lakhs. The repayment period is 5 years with a grace period of 1 year. NABARD also provides insurance cover for livestock purchased under the scheme. Loan Giving Institutions Under Dairy Farming Scheme Loan giving institutions under Dairy Farming Scheme are as follows:- The Rural Development Banking and Finance Corporation (RBFC) The National Cooperative Development Corporation (NCDC) The Agriculture and Rural Development Bank (ARDB) NABARD Dairy Farming Subsidy Schemes Type: Establishment of small dairy units with crossbred cows/ indigenous descript milch cows like Sahiwal, Red Sindhi, Gir, Rathi etc / graded buffaloes up to 10 animals. Investment: Rs 5.00 lakh for 10 animal unit – minimum unit size is 2 animals with an upper limit of 10 animals. Subsidy: 25% of the outlay (33 .33 % for SC / ST farmers, ) as back-ended capital subsidy subject to a ceiling of Rs 1.25 lakh for a unit of 10 animals ( Rs 1.67 lakh for SC/ST farmers,). A maximum permissible capital subsidy is Rs 25000 ( Rs 33,300 for SC/ST farmers )for a 2 animal unit. The subsidy shall be restricted on a pro-rata basis depending on the unit size. Type: Rearing of heifer calves – cross bred, indigenous descript milch breeds of cattle and of graded buffaloes – up to 20 calves. Investment: Rs 4.80 lakh for 20 calf unit – the minimum unit size of 5 calves with an upper limit of 20 calves. Subsidy: 25% of the outlay (33.33 % for SC / ST farmers) as back-ended capital subsidy subject to a ceiling of Rs 1.20 lakh for a unit of 20 calves ( Rs 1.60 lakh for SC/ST farmers). A maximum permissible capital subsidy is Rs 30,000 ( Rs 40,000 for SC/ST farmers) for a 5 calf unit. The subsidy shall be restricted on a pro-rata basis depending on the unit size. Type: Vericompost (with a milch animal unit .To be considered with milch animals and not separately ). Investment: Rs. 20,000/- Subsidy: 25% of the outlay (33.33 % for SC / ST farmers)as back-ended capital subsidy subject to a ceiling of Rs 5,000/- ( Rs 6700/- for SC/ST farmers,). Type: Purchase of milking machines /milk testers/bulk milk cooling units (up to 2000 lit capacity). Investment: Rs 18 lakh. Subsidy: 25% of the outlay