Expanding a business into new markets or diversifying operations often requires setting up a separate entity. One of the most effective ways to achieve this is by establishing a subsidiary company under Indian law. A subsidiary provides several advantages, including limited liability, tax benefits, and operational flexibility while allowing the parent company to maintain control. Setting up a subsidiary company in India involves specific legal procedures and compliance with the Companies Act, 2013. This guide will cover the subsidiary company registration process, key legal requirements, and essential steps to ensure smooth incorporation, helping businesses grow strategically while maintaining regulatory compliance.
What is a Subsidiary Company?
A subsidiary company is a business entity that is controlled by another company, known as the holding company. The holding company owns more than 50% of the subsidiary’s shares, giving it the authority to make key decisions. Despite this control, the subsidiary operates as a separate legal entity, maintaining its own financial and management structure.
Subsidiary Company Meaning
In simple terms, a subsidiary company is a company owned or controlled by another company. It may function independently but is ultimately influenced by the holding company. Subsidiaries can be wholly owned (100% ownership) or partly owned (more than 50% but less than 100%).
Holding and Subsidiary Company Relationship
A holding company is the parent entity that controls the subsidiary. The holding company’s role is to oversee and manage its subsidiaries, ensuring they align with the overall business strategy. While subsidiaries operate independently, their major financial and strategic decisions often require approval from the holding company.
Holding Company and Subsidiary Company Examples
Many multinational corporations use the holding-subsidiary model to expand globally. Some well-known examples include:
- Google India Pvt. Ltd. (Subsidiary of Alphabet Inc.)
- Jio Platforms Ltd. (Subsidiary of Reliance Industries Ltd.)
- Maruti Suzuki India Ltd. (Subsidiary of Suzuki Motor Corporation)
Steps for Subsidiary Company Registration in India
Setting up a subsidiary company in India involves legal procedures and compliance with the Companies Act, 2013. Below are the key steps:
1. Choose the Business Structure
Before registering with a subsidiary, decide on the business structure. The subsidiary can be:
- Private Limited Company (Most Common Choice)
- Public Limited Company
- Limited Liability Partnership (LLP)
2. Obtain Digital Signature Certificate (DSC) and Director Identification Number (DIN)
- Directors must obtain a Digital Signature Certificate (DSC) to sign documents electronically.
- A Director Identification Number (DIN) is mandatory for all directors of the subsidiary.
3. Reserve the Company Name
- Apply for name approval through the RUN (Reserve Unique Name) service on the Ministry of Corporate Affairs (MCA) portal.
- The name should be unique and must include "Private Limited" if it's a private subsidiary.
4. Draft the Memorandum of Association (MOA) & Articles of Association (AOA)
- MOA outlines the company’s objectives.
- AOA defines the internal rules and regulations.
5. File Incorporation Application (SPICe+ Form): Submit the SPICe+ form on the MCA portal with essential documents:
· MOA & AOA
· Identity & address proof of directors
· Holding company details
· Proof of registered office
6. Obtain Certificate of Incorporation
- Upon approval, the Registrar of Companies (ROC) issues a Certificate of Incorporation, officially recognizing the subsidiary.
7. Apply for PAN, TAN, and Bank Account
- A Permanent Account Number (PAN) and Tax Deduction & Collection Account Number (TAN) are necessary for tax compliance.
- Open a business bank account in the subsidiary’s name.
Compliance Requirements for Subsidiary Companies
Once the subsidiary company registration is complete, several compliance requirements must be followed:
1. GST Registration
- Every subsidiary engaged in taxable sales must apply for GST registration online.
- A GST-registered company can avail itself of input tax credit and expand business operations smoothly.
2. Annual Filings with ROC
- File Annual Returns (MGT-7) and Financial Statements (AOC-4) with the ROC.
- Conduct board meetings and maintain financial records.
3. Income Tax Filings
- File income tax returns and comply with Transfer Pricing Regulations if transactions occur between the holding and subsidiary company.
4. GST Cancellation (If needed)
- If the subsidiary ceases operations or does not meet GST compliance requirements, GST cancellation must be processed through the GST portal.
LLP Registration as an Alternative to a Subsidiary
For businesses looking for flexibility with fewer compliance requirements, LLP registration is an alternative to setting up a subsidiary. Unlike a private limited company, an LLP has:
- Less strict compliance norms
- Lower tax liabilities
- No minimum capital requirement
However, an LLP cannot have shareholders, making it unsuitable for companies planning to issue equity shares.
Conclusion
Setting up a subsidiary company in India is a strategic move for businesses looking to expand while maintaining legal separation. The holding Company and subsidiary company model ensures that the parent company retains control while allowing the subsidiary to operate independently. By following the proper subsidiary company registration process, fulfilling compliance requirements, and obtaining GST registration, businesses can ensure smooth operations and legal security.
