A subsidiary company is a separate legal entity controlled by a parent or holding company. Establishing a subsidiary requires compliance with legal and regulatory requirements to ensure smooth operations and adherence to corporate laws. This article provides a legal & compliance checklist for subsidiary companies, covering subsidiary company registration, legal definitions, and the difference between a holding company and a subsidiary company.
What is a Subsidiary Company?
A subsidiary company is a business entity in which another company (known as the holding company) owns a majority stake (more than 50%), giving it control over the subsidiary’s management and operations. The subsidiary, though controlled by the parent company, maintains its own legal identity and is responsible for compliance with laws and regulations.
Subsidiary Company Meaning
A subsidiary company is an organization controlled by another company (holding company) due to ownership of more than 50% of its shares or voting rights. Subsidiaries operate independently but are influenced by the parent company’s strategic decisions.
Holding and Subsidiary Company
A holding company is a business entity that owns shares in one or more companies (subsidiaries) but does not conduct business operations directly. The subsidiary company, on the other hand, carries out business activities but remains under the control of the parent company.
Difference Between Holding Company and Subsidiary Company
|
Feature |
Holding Company |
Subsidiary Company |
|
Ownership |
Owns shares in subsidiaries |
Controlled by a holding company |
|
Business Operations |
Usually does not engage in operations |
Conducts business activities |
|
Liability |
Limited liability, risk distribution |
Liable for its own debts and obligations |
|
Control |
Exercises control over subsidiaries |
Managed under the parent company’s influence |
Legal & Compliance Checklist for Subsidiary Company Registration
To establish a legally compliant subsidiary, companies must follow these key steps:
1. Subsidiary Company Registration
- Choose a business structure (Private Limited, Public Limited, or LLP).
- Register the company under the Companies Act, 2013 in India.
- Obtain Director Identification Number (DIN) and Digital Signature Certificate (DSC) for directors.
- File the Memorandum of Association (MoA) and Articles of Association (AoA).
- Obtain a Certificate of Incorporation from the Registrar of Companies (RoC).
2. Compliance with Corporate Laws
- Maintain proper statutory records and registers.
- Hold board meetings and annual general meetings (AGMs).
- File annual financial statements and tax returns.
3. Taxation and Financial Compliance
- Register for GST Registration, PAN, and TAN.
- Ensure proper tax filings (Income Tax, TDS, GST returns).
- Conduct audits as per legal requirements.
4. Employment Laws & Regulations
- Comply with labor laws, such as minimum wage, employee benefits, and workplace safety.
- Maintain employee contracts and payroll compliance.
5. Foreign Subsidiary Compliance (If Applicable)
- Adherent to Foreign Exchange Management Act (FEMA) regulations.
- Report Foreign Direct Investment (FDI) to regulatory authorities.
Conclusion
Registering and managing a subsidiary company requires strict compliance with corporate, tax, and employment laws. By following the legal & compliance checklist, businesses can ensure smooth operations while avoiding legal penalties.
