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.
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.
For the purposes of this clause—
The above definition includes all the below mentioned types of holdings:
Minimum Requirement To Incorporate Indian Subsidiary Company
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)
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:
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
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
Details required to be mentioned in online form:
Part B- Incorporation of Company
Step 3: Information/ Documents required from foreign Company
After approval of name or for Incorporation of Company applicant have to prepare the following below mentioned Documents;
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.
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.
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.