wholly owned subsidiary company registration
A wholly owned subsidiary company is a company whose 100% stock is owned by a parent/holding company. The difference between a subsidiary and a wholly owned subsidiary is that if a parent company owns 50-99% of stock then the company is a subsidiary company, but if the parent company holds an entire stock it is called a wholly owned subsidiary company.
Why register a wholly owned subsidiary company
Wholly owned subsidiary companies are those companies in which the parent company holds 100% stakes or shares. Multinational companies that choose to operate in more than one country can continue their business operation through a wholly owned subsidiary company.
These types of companies can be incorporated as private limited companies in India. Such companies can avail certain exemptions in the income tax act.
Foreign companies run their operations in India by forming a wholly owned subsidiary. Since 100% FDI is permitted under the FDI policy, a wholly owned subsidiary company shall have some foundation and rules that apply to other Indian companies.
The wholly owned subsidiary company has to comply with the companies act, 2013. Minimum ₹1,00,000 lacs (One lakh rupees) is required for the paid-up share capital. There must be at least 2 shareholders and 2 directors out of 2 directors one must be an Indian resident. It is not necessary that a wholly owned subsidiary company is a part of the parent company but it can also be a part of other industries.
A wholly owned subsidiary company is a beneficial entity for those who want to set up their permanent establishment in India.
Benefits of a wholly owned subsidiary company
A wholly owned subsidiary company has a lot of benefits and perks, they are as follows:
- Separate legal entity: A wholly owned company has an identity distinct from its members and it is a futuristic person established under the Act. Therefore a company can name, can hold or dispose of the property. Also, such companies can incur debts.
- Perpetual succession: Since the company is a separate legal person in the eyes of laws, therefore its existence is unaffected by the existence of its members. The death or insolvency of members won’t affect the company’s operation. The company will continue to run as a separate entity.
- Foreign direct investment (FDI): In many sectors 100% FDI is allowed without prior approval of the government. Such FDI is not permitted in the case of sole proprietorship and partnership.
- Liability of members is limited: The liability of the members of a wholly owned subsidiary company is limited. Unlike a partnership, the members of a wholly owned subsidiary are not personally liable for the debts of the company. They are liable only to extent of the shares held by them.
- Shares transferability: The company which is limited by shares, such shares can be transferred by shareholders to any other person by fulfilling prescribed requirements.
- Capacity to borrow: A wholly owned subsidiary enjoys a better borrowing capacity. Such a company is allowed to raise funds through issuing debentures can also accept deposits from the public.
- Guidance by the parent company: Since the parent company holds the entire share capital in the wholly owned subsidiary company, it guides the company on various matters.
- Resources of the parent company can be used: The wholly owned subsidiary company can use the parent company’s resources to run its operation. The wholly owned subsidiary can prepare its finances with the help of a holding or parent company.
- Benefits to the parent company: A parent company has full control over the operations of a wholly owned subsidiary since the entire stock is held by the parent company.
- Strategic decisions: Since the operations of a wholly owned subsidiary are under the parent company’s control. It helps in creating synergies in research and development, marketing and leads to faster execution. This helps in making strategic decisions.
About the wholly owned subsidiary company registration
A wholly owned subsidiary is a company in which the entire 100% stock is held by another company called the parent company. A wholly owned subsidiary has to follow the instructions of the parent company and the parent or the holding company controls its entire operations.
Some examples of wholly owned subsidiary companies are as follows:
- Volkswagen AG owns and controls the entire operations of Volkswagen Group of America.
- The Walt Disney Company wholly controls and owns Marvel Entertainment and EDL Holding Company LLC.
- Starbucks, the company in Japan, is a wholly owned subsidiary of the Starbucks Group.
A wholly owned subsidiary company is entirely controlled by its parent company. Such companies are required to prepare their financials so that some can be used in the consolidated financials of the parent company. The wholly owned subsidiary company enjoys certain tax exemptions under the relevant acts.
Requirements of a wholly owned subsidiary company registration
In order to incorporate a wholly owned subsidiary company, the following are the requirements to be followed:
- Minimum 2 directors, 2 shareholders, and minimum paid-up capital of ₹1,00,000 lacs (One lakh rupees) is required.
- As per the provisions of the companies act, 2013, to become the director of any Indian company such as a wholly owned subsidiary company. The person is required to obtain a director identification number (DIN) after obtaining the digital signature certificate (DSC).
- A wholly owned subsidiary company can be defined as the entity of which 100% of shares are held by another company which is called as the parent company.
- When any foreign company makes an investment in India in the form of foreign direct investment, that is, 100% FDI, then the Indian company in which the foreign company has invested becomes a wholly owned subsidiary company of that foreign company.
- After incorporating a wholly owned subsidiary company, the company can enjoy the benefits of a parent company running its operations.
- The wholly owned subsidiary company is regulated by the provisions of the companies act, 2013.
Registration procedure for a wholly owned subsidiary company
Following are the steps to be taken care of when registering the company as a wholly owned subsidiary company:
- Director identification number (DIN): Before incorporating the company, the director of the company has to obtain their DIN from MCA by filling an online application form in the prescribed manner. The DIN is a distinct number for identifying the director.
- Digital signature certificate (DSC): The proposed director of the company is also required to have a DSC to register with the ROC.
- Name approval: The application for approving the name of the company is to be filled with the registrar of companies in the prescribed manner.
- Memorandum of Association and Articles of Association: A wholly owned subsidiary company has to prepare the MOA and AOA of the company to comply with the requirements of the companies act, 2013.
- To file all the documents related to the incorporation to ROC including the MOA and AOA
- The ROC will check all the documents and if satisfied with the documents, the ROC will issue the certificate of incorporation to the wholly owned subsidiary company and the same shall be treated as conclusive evidence of the registration of the company.
Documents required for registration
Following are the documents required for registering a wholly owned subsidiary company:
- PAN Card of all directors and members
- Address proof
- Passport size photographs of directors and members
- For the registered office:
- Scanned copy of the bank statement
- Rental agreement
- NOC from the landlord
- Property deed