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Wholly Owned Subsidiary or Subsidiary in India?

Narendra Kumar

| Updated: Jul 26, 2017 | Category: Company Registration

Subsidiary Company

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.

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.

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 type of companies can be incorporated as a private limited company in India. They are treated as Indian companies under the Income Tax Act, 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

Here are the following conditions:

  • 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 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

  • 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.

A foreign company can incorporate a wholly owned subsidiary in India after considering all the benefits associated with it.

Difference between Wholly Owned Subsidiary or 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 its 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

  • There must be at least two directors who must have DSC (Digital Signature Certificate);
  • All the directors must apply for DIN (Directors Identification Number);
  • Name approval application is filed by the applicant in form INC 1.
  • After the name approval from registrar of companies, An applicant is required to file incorporation application in form INC 7 along with the Memorandum of Association & Article of Association;
  • It is required to file form DIR 12 for the purpose of appointment of directors;
  • After this it is required to file form INC 22 for the notice of situation of the registered office;
  • All these incorporation documents are filed with the requisite ROC fees.
  • Registrar of Companies verifies the details mentioned in the incorporation documents and suggest changes if any or otherwise issue the certificate of incorporation.

 Documents Required

  • Address Proof;
  • PAN Card (Mandatory);
  • ID Proof.

In the case of Foreign National

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

Also, read: Concept of Wholly Owned Subsidiary outside India

Narendra Kumar

Experienced Finance and Legal Professional with 12+ Years of Experience in Legal, Finance, Fintech, Blockchain, and Revenue Management.

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