A 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.
1. Definition of a 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.
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.
2. Registration of a Subsidiary Company
1. 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)
2. Document upload: The following are the documents that will be required for the filing of the application. The documents are the same as required for the incorporation of the company:
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
3. Authentication and Payment: On upload of documents, the applicant must download the form in PDF format, authenticate it by affixing DSC and upload the form along with all the requisite forms and declaration. On making payment post all these formalities, the Registrar of Companies (RoC) will scrutinize the same and issue the Certificate of Incorporation.
3. A Final Note
A company looking for expansion across regions and sectors will have to resort to the formation of subsidiaries. Subsidiaries act like extra arms to the main body and assist the holding company in reaching out to different regions, business sectors, and countries. Legally, an Indian subsidiary company is an Indian company and treated as one and is required to meet all the compliances applicable to Indian companies.Disclaimer: The materials provided herein are solely for information purposes. No attorney-client relationship is created when you access or use the site or the materials. The information presented on this site does not constitute legal or professional advice and should not be relied upon for such purposes or used as a substitute for legal advice from an attorney licensed in your state.