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 entity, possesses the authority and right to purchase or rent properties in India for its business activities. To prevent potential conflicts among company members, it is advisable to acquire such properties in the name of the company itself, aligning with the principle of perpetual succession.
FAQs
What are the minimum requirements for registering a company in India?
Minimum 2 directors and 1 resident director.
office address in India
2 Shareholders
What are the type of Subsidiary companies that can be registered in India?
A foreign company can register a subsidiary company that is a Private Limited company or a Branch office.