Subsidiary Company – Indian & Foreign

Introduction 

A subsidiary, subsidiary company or daughter company is a company owned or controlled by another company, which is called the parent company or holding company. Two subsidiaries that belong to the same parent company are called sister companies.

The subsidiary can be a company, corporation or limited liability company, and in some cases a government- or state-owned enterprise. They are a common feature of modern business life and most multinational corporations organize their operations in this way. Examples include holding companies such as The Walt Disney Company, Warner Media, or Citigroup; as well as more focused companies such as IBM, Xerox, or Microsoft. These, and others, organize their businesses into national and functional subsidiaries, often with multiple levels of subsidiaries.

Subsidiaries are separate, distinct legal entities for the purposes of taxation, regulation and liability. For this reason, they differ from divisions, which are businesses fully integrated within the main company, and not legally or otherwise distinct from it. In other words, a subsidiary can sue and be sued separately from its parent and its obligations will not normally be the obligations of its parent. However, creditors of an insolvent subsidiary may be able to obtain a judgment against the parent if they can pierce the corporate veil and prove that the parent and subsidiary are mere alter egos of one another, therefore any copyrights, trademarks, and patents remain with the subsidiary until the parent shuts down the subsidiary.

Tiered Subsidiaries

In descriptions of larger corporate structures, the terms “first-tier subsidiary”, “second-tier subsidiary”, “third-tier subsidiary”, etc., are often used to describe multiple levels of subsidiaries. A first-tier subsidiary means a subsidiary/daughter company of the ultimate parent company, while a second-tier subsidiary is a subsidiary of a first-tier subsidiary: a “granddaughter” of the main parent company. Consequently, a third-tier subsidiary is a subsidiary of a second-tier subsidiary—a “great-granddaughter” of the main parent company.

Definition as per The Companies Act, 2013

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.

Explanation-
For the purposes of this clause—

1. 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;
2.  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;
3.  the expression “company” includes any body corporate;
4.  “layer” in relation to a holding company means its subsidiary or subsidiaries.

The above definition includes all the below mentioned types of holdings:

1. Company A holds more than 50% of the share capital in Company B.
2. Company A holds the power to appoint or remove the majority of the directors of Company B.
3. 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.
4. 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.

Minimum Requirement To Incorporate Indian Subsidiary Company

1. At least 2 Directors
2. 2 Shareholders

Procedure of Incorporation of a Indian Subsidiary Company

Application in the prescribed form:

Step 1: 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)

Step 2: After successfully approval of name from ROC (Registrar of Companies) of Ministry Of Corporate Affairs, an applicant is required to file: Form INC-7 which means application for incorporation of company other than one-person company.

Form DIR-12 Which Means particulars of appointment of directors and key managerial personal.

Form INC-22 which means MOA of the company along with notice of situation clause.

 Step 3: 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:

1. 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

2. 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

Step 4: After the related determined fees paid to ROC verifies all filed documents which was upload in application. Forms which were given above INC-22 and DIR-12 are approved via the Straight- Through-Process (STP) and then the ROC verifies Form INC-7 Means application of incorporation of companies in detail manner. The ROC may be suggest some changes in the form or attachment wherever its required.

Finally, the changes have been affected and the ROC is satisfied on the full application and documents requirement, then the Certificate of Incorporation is sent to the applicant via email in detailed manner.

If the above mentioned procedure of documents are available and the proper procedure is followed by the applicant, then there will not be any unnecessary delays from ROC and company can be incorporated successfully.

Advantages of opening an Indian Subsidiary

1. Independent legal structure—The Indian subsidiary is an independent or separate legal structure from its parent company and it is regulated under the Indian commercial legislation.
2. Transfer of shares: – The shares purchased by a shareholder can be simply transferred or exchanged to another party or person, after signing a share transfer form and a share certificate.
3. Acquire property in India: – As the subsidiary is an independent structure, it is allowed to acquire properties in India.
4. Incorporation with foreign direct investment: – as mentioned above, Foreign Direct Investment is widely allowed to Indian subsidiary companies and this applies to most of the economic activities that are available in that country.

Procedure for Incorporation of Foreign Subsidiary / Wholly Owned Subsidiary

Step 1: Apply for Name Approval:

Before application for name approval, foreign Company has to choose the name on basis of followings:

a) In case of Subsidiary or WOS, foreign Company can use coin word of its name as coin word for Incorporation of Company in India to take the Benefit of Its goodwill in foreign County.

b) Foreign Company can apply the same name (name in foreign country) in India by using word “India” in its name.

c) If foreign Company having any registered Trade Mark then it can use such trademark for Incorporation of Company in India.

d) Any other name as decided by the Foreign Company.

Step 2: SPICe+ 

SPICe+ would have two parts viz.:

Part A – Name Approval

Part B- Incorporation of Company

PART A-for Name reservation for new companies

1. Applicant have to login into their account on MCA Website.
2. Click on New Application and fill the form:

Details required to be mentioned in online form:

1. Type of Company (i.e. Producer, Part I, OPC, Section 8 etc.)
2. Class of Company (whether Private, Public)
3. Category of Company (whether Company limited by shares, limited by Guarantee or unlimited)
4. Sub-category Union Government, State Government, Non-Government Company, Subsidiary of Company incorporated outside India)
5. Main Division of Industrial Activity (enter number belonging to Industrial Activity)
6. Description of main division
7. Particulars of Proposed or Approved Name. (User has to enter the name he wants to reserve, for incorporation of a new company. 

3. Fill the given Information and save the application as follows:

• Fill the Information
• Save the Application
• Submit the Application

Part B- Incorporation of Company

Step 3: Information/ Documents required from foreign Company

1. Notarized copy of resolution of foreign Company ‘mentioning the name of authorized representative, no. of subscription of shares’.
2. Notarized copy of ID Proof of authorized representative, if such person is non – resident of India.
3. Notarized copy of Charter of Foreign Company.
4. Name of one Resident Director.
5. Name of Nominee (in case of incorporation of WOS)

Documents required:

After approval of name or for Incorporation of Company applicant have to prepare the following below mentioned Documents;

• Memorandum of Association of Company (Physical copy of MOA shall be prepare; e-MOA (INC-33) can’t be prepared).
• Article of Association of Company (Physical copy of AOA shall be prepare; e-AOA (INC-34) can’t be prepared).
• INC-9 declaration by first subscribers and directors
• DIR-2 declaration from first Directors along with Copy of Proof of Identity and residential address.
• Declaration from the foreign subscribers in respect of not having PAN.
• NOC from the owner of the property.
• Proof of Office address (Conveyance/ Lease deed/ Rent Agreement etc. along with rent receipts)
• Copy of the utility bills (not older than two months)
• Digital Signature with only one Subscriber is enough for Incorporation of Company.
• DIR-2 from the Resident Director along with self attested copy of PAN and resident Proof.

Step 4: Fill the Information in Form:

Once all the above mentioned documents/ information are available. Applicant has to fill the information in the e-form “Spice+”.

Step 5: Fill details of GST, EPFO, ESIC, BANK Account in AGILE PRO:

After proper filing of SPICE+ form applicant has to move on filling of information in the AGILE PRO form Dashboard Link. All the information which are common in PART-B and AGILE PRO shall be auto fill in AGILE Pro. It is also web based form.

• GST: If Company wants to apply for GST it has to select YES in the form and fill the information in the form.
• EPFO/ ESIC: It is mandatory to apply for ESIC and EPFO. However, as per their concerned department company not required to file return till the date applicability of provisions of same on such company.
• Bank Account: It is mandatory to open bank account through this form. Bank account branch shall be assigned according to nearest branch to the registered office of the Company.

Step 6: Fill details of INC-9:

INC-9 shall also be generated web-based and need affixation of Directors/ subscribers on the same. It shall not be generated web-based in one situation when at least one directors/ subscriber not having DIN and PAN both.

Step 7: Download PDF of all the web-based forms-:

After filing of all web-based form i.e.

• Spice+
• Agile Pro
• INC-9

Download PDF of such forms from dash board given link. After downloading of PDF affix DSC on all the forms accordingly.

Step 8: Filing of forms with MCA-:

Once all forms ready with the applicant, upload all four document as Linked form on MCA website and make the payment of the same.

Step 9: Certificate of Incorporation-:

Incorporation certificate shall be generated with CIN, PAN & TAN details over it.

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.