Subsidiary Company

A subsidiary company is often referred to as a sister company, while the company that exercises control over it is known as the parent company or holding company. The parent company holds the authority to control the subsidiary company, either in part or entirely.

The registration process for an Indian subsidiary company is governed by the Companies Act of 2013. According to the Companies Act of 2013, a subsidiary company can be defined as a company in which a foreign corporate body or parent entity holds a minimum of 50% of the total share capital. In essence, the parent company exerts a significant influence and control over the subsidiary company.

Types of Subsidiaries in India

In India, there are two primary categories of subsidiaries:

Wholly-Owned Subsidiary

In a wholly-owned subsidiary, the parent company possesses 100% ownership of the subsidiary’s shares. However, it’s important to note that wholly-owned subsidiaries can only be established in sectors that permit 100% Foreign Direct Investment (FDI).

Subsidiary Company

In this category of subsidiary, the parent company owns 50% of the subsidiary’s shares.

Before proceeding with the establishment of a subsidiary in India, obtaining approval from the Reserve Bank of India is a crucial prerequisite. This regulatory step ensures compliance with the country’s foreign investment regulations and safeguards the interests of all stakeholders involved.

Requirements of Company Registration in India

The process of registering a company in India is governed by the Companies Act, 2013, which outlines various pre-incorporation and post-incorporation requirements. Here are the essential elements to consider when registering a company in India:

• Company Name: Your new business requires a unique name that is distinct from existing businesses’ names or trademarks
• Shareholders: The parent company can hold 100% of the shares, or any combination of two foreign nationals can be shareholders. It is not mandatory to have an Indian resident as a shareholder.
• Share Capital: India does not impose a minimum capital requirement for company registration.
• Directors: A minimum of two directors is mandatory, with at least one director being an Indian resident. Nominee directorship services can be provided if required.
• Registered Address: Every company in India must have a registered address that is officially recorded in government records. Virtual office address services are available to meet this requirement.
• Annual General Meeting (AGM): According to the Companies Act, every Indian company must conduct at least one general meeting annually, in addition to two board meetings.
• Company Secretary: It is mandatory to file three secretarial returns each year, which are handled by a company secretary. IndiaFilings can assist with this requirement. A statutory auditor must also be appointed.

Procedure for Indian Subsidiary Company Registration

Setting up an Indian subsidiary company involves several key steps and compliance requirements: Here’s a step-by-step guide on how to register a company’s subsidiary in India:

Determine the Type of Company

Decide on the type of subsidiary company you want to establish.

Obtain Digital Signature Certificate (DSC)

Since the registration process is conducted online, you must obtain a Digital Signature Certificate (DSC) for the proposed directors of the company. The DSC is used to electronically sign the necessary documents during the registration process.

Apply for Director Identification Number (DIN)

The directors of the subsidiary company must obtain a Director Identification Number (DIN) from the Ministry of Corporate Affairs (MCA). This can be done by submitting the DIN application online.

Name Approval

Please choose a unique name for your subsidiary company and apply for its approval through the MCA’s online portal. Ensure that the chosen name adheres to the naming guidelines provided by the MCA.

Draft Memorandum of Association (MoA) and Articles of Association (AoA)

MoA and AoA are legal documents that outline the company’s objectives, rules, and regulations. Prepare these documents following the Companies Act 2013.

File Incorporation Documents

Once your chosen name is approved, you must file the incorporation documents, including the MoA, AoA, and other required forms, with the Registrar of Companies (ROC) through the MCA’s online portal. The incorporation process is typically done using the SPICe+ form on the Ministry of Corporate Affairs portal.

Payment of Registration Fees

Pay the necessary registration fees to the ROC based on the authorized capital of the subsidiary company.

Obtain a Certificate of Incorporation (COI)

If all the submitted documents and information are in order, the ROC will issue a Certificate of Incorporation. This certificate officially confirms the registration of the subsidiary company.

Apply for Permanent Account Number (PAN) and Tax Registration

After obtaining the CoI, apply for a Permanent Account Number and a Tax Deduction and Collection Account Number from the Income Tax Department for the subsidiary company.

Open Bank Account

Finally, open a bank account in the name of the subsidiary company in India.

Compliance with Other Regulations: In addition to the company registration process, ensure compliance with other relevant regulations.

Obtain a GST Number

Goods and Services Tax (GST) registration is required after completing the above steps, mainly if the company engages in various business activities. Every Indian company must apply for a GST number for taxation purposes.

Initiating Business Operations:

The company can commence its business operations once all the preceding steps are completed.

Compliance Requirements for Indian Subsidiary Registration

To establish a legal and valid Indian subsidiary company, compliance with specific regulations is mandatory:

• Foreign Exchange Management Act (FEMA): Foreign companies based in India must adhere to foreign exchange laws and regulations outlined in the Foreign Exchange Management Act, 1999.
• Companies Act, 2013: All Indian subsidiary companies must comply with the Companies Act, 2013 provisions.
• Reserve Bank of India (RBI) Compliances: RBI imposes several foreign exchange management compliances on Indian subsidiary companies.
• Income Tax Act, 1961: Indian subsidiaries must file income tax returns every year. The corporate tax rate in India is currently 25%.
• Annual Returns: Companies are required to file annual returns with the MCA and the Registrar of Companies.
• SEBI (Listing Obligations and Disclosure Regulations): If the subsidiary lists its securities on a stock exchange, it must comply with SEBI regulations.

Taxation of Indian Subsidiary Companies

Indian subsidiary companies are subject to specific taxation policies:

• Taxes are levied on all income earned within or outside India, including dividends from foreign subsidiaries.
• Tax rates for foreign subsidiaries in India include 50% for royalty received for technical services from the government or any Indian entity and 40% for other income.
• A surcharge of 2% is applied if the company’s income falls between Rs. 1 Crore and Rs. 10 Crores; for payments above Rs. 10 Crores, a 5% surcharge is levied.
• A 4% health and education cess is added to the total tax amount.

Concessional tax rates apply to Indian subsidiaries in specific sectors, such as oil exploration, air transportation, and shipping businesses.

Documents Required For Indian Subsidiary

• Recent Utility Bill(Business Place)

• Aadhaar Card(Aadhaar is mandatory for Indian Directors.)