Wholy Owned Subsidiary

INTRODUCTION

A wholly owned subsidiary is a way through which foreign entrepreneurs setup their businesses and make investments in India. It can be incorporated in the following forms:

  1. A private company;
  2. A company limited by shares;  
  3. A guarantee company;
  4. An unlimited company

A wholly owned subsidiary means an entity whose 100% shares are held by another company, which is called a holding company. The Reserve Bank of India allows 100% Foreign Direct Investments (FDI) approval through automatic route in India. In this case, an Indian company becomes a wholly owned subsidiary of a foreign company.

DEFINITION

"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 voting power, 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 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;
  • 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;
  • the expression "company" includes any body corporate;
  • "layer" in relation to a holding company means its subsidiary or subsidiaries.

WHY INCORPORATE A WHOLLY OWNED SUSIDIARY?

  • Various exemptions are available to a wholly owned subsidiary under the Companies Act, 2013
  • Section 185 of the companies act, 2013 (i.e. loan to directors, etc.) shall not apply to subsidiary companies
  • Funds can be made in the form of share capital and loan

PROCESS OF INCORPORATION OF A WHOLLY OWNED SUBSIDIARY

  1. Obtain Digital Signature Certificate (DSC) for the proposed director(s): First of all, the basis requirement to incorporate a company is having a DSC as all the filings to the Registrar of Companies are made through an online application system which is appended with a valid DSC.
  2. Obtain Director Identification Number (DIN) for the proposed director (s): DIN is a unique director identification number allotted by the Central Government to any person intending to be a director of a company.
  3. Select suitable company name and make an application to the MCA for availability of name: The name of a wholly owned subsidiary shall end with the word ‘Private Limited’ and the proposed company name shall comply with the Company Name Availability Guidelines under the Companies Act, 2013.
  4. Capital requirements: There is a minimum 1 lakh capital (authorised or paid up capital) requirement for registering a wholly owned subsidiary.
  5. Registered office: It is the principal place of business of the proposed company from where it can control its operations.
  6. Documentation & filing: Documents, such as Memorandum of Association (MOA) and Articles of Association (AOA), need to be drafted, signed and filed, along with the fees applicable.
  7. Certificate of Incorporation: After scrutiny, the Central Registration Centre (CRC) issues a Certificate of Incorporation.

TIME REQUIRED

Generally, it takes 10-15 days from the date of application to get the Certificate of Incorporation from the CRC.

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