A subsidiary company is one that is controlled by another company, known as the parent or holding company. The holding company typically owns a majority of the subsidiary's shares, enabling it to exert control over its operations and decision-making processes. When a holding company owns 100% of the shares of a subsidiary, it is referred to as a wholly-owned subsidiary.
Legal Framework
According to Section 2(87) of the Companies Act, 2013, a subsidiary is defined in relation to a holding company in two main ways:
- Board Control: The holding company controls the composition of the Board of Directors of the subsidiary.
- Share Capital Control: The holding company holds more than 50% of the total share capital of the subsidiary, either on its own or with other subsidiaries.
Additionally, the Act specifies that even if control is exerted through another subsidiary, the parent company still qualifies as a holding company.
Types of Holdings
The definition of a subsidiary encompasses various scenarios, such as:
- Direct Control: Company A holds over 50% of Company B's shares.
- Board Influence: Company A has the authority to appoint or remove a majority of Company B's directors.
- Multiple Layers: If Company A holds over 50% of Company B, and Company B, in turn, controls Company C, then Company A is considered the holding company for both B and C.
- Interconnected Rights: If Company X has the right to influence the board structure of Company Y, which has similar rights in Company Z, then Company X is the parent company for both.
Different Types of Subsidiary Companies
Corporations often create complex organizational structures that include various subsidiaries, each serving distinct functions and having unique characteristics. Here are the main types of subsidiary companies:
1. Wholly Owned Subsidiary
A wholly owned subsidiary occurs when a parent company acquires 100% of the subsidiary's shares. This structure gives the parent complete control over the subsidiary's operations, allowing it to direct management decisions and appoint the board of directors.
2. Partly Owned Subsidiary
In a partly owned subsidiary, the parent company holds between 50.1% and 99% of the subsidiary’s shares, making it the major shareholder. While the parent company has significant oversight over management, it may also collaborate with minority shareholders on certain decisions.
3. Joint Venture
A joint venture arises from a partnership between two or more parent companies, combining resources for a specific project or business goal. Ownership stakes can vary, with some joint ventures splitting shares equally at 50% each, granting both parties equal voting rights and representation on the board.
Required Documents for Registering a Subsidiary Company in India
When applying, you'll need to prepare and upload various documents:
- Company-related Documents:
- Memorandum of Association (MoA) and Articles of Association (AoA)
- Proof of the registered business address (lease agreement or ownership documents)
- Recent utility bills
- Resolution from the promoter company
- Certificate of incorporation for foreign companies (if applicable)
- Director and Shareholder Documents:
- Digital Signature Certificate (DSC) and Director Identification Number (DIN) for all directors and designated shareholders
- Proof of identity and address for directors and shareholders
- Photographs of directors and shareholders
- Declaration of interests from first directors in other entities
Online Procedure for Subsidiary Company Registration in India
The following is the procedure for Subsidiary Company Registration:
Application Process
To register a subsidiary company, you will need to fill out the SPICe+ form, which simplifies the registration process by combining several services:
Required Documents
When applying, you'll need to prepare and upload all the documents as we mentioned above.
Authentication and Payment
After uploading the necessary documents, the application must be authenticated using a DSC. Once authenticated, you can make the required payment. The Registrar of Companies (RoC) will review the application, and upon approval, issue a Certificate of Incorporation.
What are the Benefits of Subsidiary Company in India?
- Reduced Liability
- Boost Business Development
- Wider Pool of Assets
- Increased Business Efficiency
- Expansion of Capital
- Lowered Tax Rates
Establishing a subsidiary company is a strategic move for businesses looking to expand into new regions and sectors. Subsidiaries act as extensions of the parent company, enabling it to diversify its operations and reach different markets. It’s important to remember that a subsidiary is considered an Indian company and must comply with all applicable regulations. For businesses planning to grow through subsidiaries, understanding the legal framework and registration process is crucial for success. Compliance Calendar LLP will help you in establishing your Subsidiary Company anywhere in India.
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