Company Registration

Wholly Owned Subsidiary or Subsidiary in India

Before starting up an entity in India, it is important to be aware of the available options and especially the most beneficial mode of business available. In this article, we will discuss the procedure for registration of a wholly owned subsidiary company in India

Another type of beneficial entity is a wholly owned subsidiary for those who want to set up a permanent establishment in India.

What is Wholly Owned Subsidiary?

Wholly owned subsidiaries are those companies in which Parent Company owns 100% shares of the subsidiary which allows the parent company to appoint a board of directors of the Indian Subsidiary or control the subsidiary company. It is not important that wholly owned subsidiaries are a part of a parent company, but it can also be a part of a different industry.

A company who choose to operate in more than one country can operate its business through a wholly owned subsidiary.

Subsidiary Company

The subsidiary company is a company which can be incorporated by acquiring the majority of shares of the company (more than 50%) or either by way of controlling the composition of a board of India. Holding or subsidiary company is related to each other by virtue of their holding subsidiary relationship having separate legal entities.

These types of companies can be incorporated as a private limited company in India. They are treated as Indian companies under the Income Tax Act^[1], and they are also eligible for the deduction and exemption benefits like other Indian Companies.

Private Limited Company under the Companies Act 2013 is the best choice for Indian subsidiary registration

The Private Limited Company is defined under section 2 (68) of the companies act in 2013. It includes the company

• Having a minimum paid-up share capital of Rs. 100,000 or such higher amount as may be prescribed in its article;
• Restriction on transferring its shares;
• Prohibit the invitation to the public to subscribe to its securities;
• A number of members must not exceed 200, which shall not include:

1. The person in the employment of the company;
2. An individual who were the members of the company while in the employment and continued to be members after the employment ceased.

Two or more persons can hold one or more shares jointly and shall be treated as a single member.

Requirements to set up Wholly Owned Indian Subsidiary Registration

There are certain requirements to be fulfilled in order to set up Wholly Owned Subsidiary. Here are the following requirements:

• Within one month of the incorporation of the company, it is required to introduce a minimum paid-up share capital of rupees one lakh.
• There must be a minimum of two shareholders.
• There must be two directors and one of whom must be an Indian resident. All the directors must possess DIN (Director Identification Number).
• All the directors must acquire DSC (Digital Signature Certificate).

Advantages of Incorporating Wholly Owned Subsidiary or Indian Subsidiary

The advantages can be summed up as under:

• Control

It is a very important benefit to a parent company who can exercise operational or strategic control over its subsidiary company.

• Synergies

It provides a benefit of cost synergies in such a way by using a common financial system, sharing the administrative cost and other expenses between parent & subsidiaries.

• Brand Name

It provides the benefits to both parent company and as well as to the subsidiary company. Under this, subsidiaries can retain its brand name.

• Limited Liability

There is a limited liability for both companies. The liability of the subsidiary company in case of losses shall not be borne by the parent company.

• Trade Secrets

It provides protection and security to the company’s trade secrets, expertise and technical knowledge along with the control over the operations.

It may be noted that a foreign company can incorporate a wholly owned subsidiary in India after considering all the benefits associated with it.

Difference between Wholly Owned Subsidiary and Subsidiary Company

Indian Subsidiary Company has 50% or more of its share capital is owned by the parent company but parent company and subsidiary company are the separate legal entities in different matters. The parent company has control over the subsidiary company. The amount of control by the parent company on a subsidiary company depends upon the level of managing control the parent company gives to the subsidiary company management staff.

A subsidiary company is considered as a wholly owned subsidiary company when it’s all common stock is owned by another company. Wholly Owned Subsidiary Company is an independent legal corporation having its own framework and administration however; its day to day business is directed by the parent company.

The Wholly owned subsidiary company has numerous benefits. Licensing regulation in some countries makes it difficult to incorporate a new company whereas in the case of wholly owned subsidiary there is no approval is required before the process of incorporating it. It provides the potential for coordination of global corporate strategy.

Indian Subsidiary Company Registration Procedure

In order to incorporate Indian Subsidiary Company, similar process is followed as in case of Private/Public Company in India. The company should be registered with the Registrar of Companies.

It may be noted that to ease the process of doing business, MCA introduced a new form SPICE+ recently.

For incorporation, SPICE+ has to be filed now. This form comprises of two parts-

• Part A- Name Reservation;

Part B- Incorporation of Company, Application for DIN, Bank Account opening, PAN and TAN Application, GSTIN Application, EPFO and ESIC Registration. 

These documents shall be required for filing application–

• Address Proof;
• PAN Card (Mandatory);
• ID Proof.
• MOA and AOA

In the case of Foreign National-

• Passport (Mandatory);
• Address Proof;
• ID proof.

Conclusion

With wholly owned subsidiaries, it is possible for the parent company to manage and diversify. Wholly owned subsidiary retains control over operations, products and processes. In case you have any other query related to Company Incorporation, contact Enterslice.

Read our article: Understanding the Concept of Wholly Owned Subsidiary outside India