India is said to be one of the most desirable places of earning profits for any of the investors due to its thriving and prosperous economy and availability of resources. It is among the fastest growing economies in the world and because of its tremendous growth and business opportunities, most of the companies are inclined towards India to establish one of their industries here. One of the ways to enter the Indian market is called a Wholly Owned Subsidiary.
What is a Wholly Owned Subsidiary?
Wholly Owned Subsidiary in India is a kind of a company in which another company holds a 100% share. The company which holds 100% share is called the parent company. An organization becomes a subsidiary of another when the parent organization holds a 51-99.99% share in it. When that shareholding becomes 100% it is called a wholly owned subsidiary company or organization.
If a foreign entity having a registered office outside India has invested money by acquiring 100% shares of an Indian company through the Indian FDI policy, the Indian company becomes a wholly owned subsidiary of that foreign company. When an Indian company acquires 100% share in one of the foreign company then that foreign company becomes a wholly owned subsidiary of the Indian company.
One can set up a wholly owned subsidiary in India as both either a Private Limited or as a Public Limited Company. Considering the various exemptions available to a private limited company by shares under the Companies Act, 2013, it is recommended that a Wholly Owned Subsidiary Company be established as a Private Limited Company.
Key Features of a Wholly Owned Subsidiary
- In India, the wholly owned subsidiary company is regulated by the Companies Act 2013.
- Under this, all types of business activities are permitted such as manufacturing, marketing, and service industry.
- Under the Companies Act, 2013 100% Foreign Direct Investment (FDI) is permitted, no prior approval of RBI is required or needed.
- It is treated as a domestic company under Tax Law and is eligible for all exemptions, deduction benefits as applicable to any other Indian company.
- Funding can be made in the form of share capital and Loan.
Procedure To Set Up A Wholly Owned Subsidiary
- Minimum Requirement: The following minimum requirements must be fulfilled in order to establish a wholly owned subsidiary company in India:
- Minimum two Directors.
- Minimum two Share Holders.
- Minimum Paid Up Capital of 1 lakh rupees
In order to establish a wholly owned subsidiary company in India one must follow up the following steps:
Step I- Obtaining Directors Identification Number (DIN) and Digital Signature Certificate (DSC):
Directors Identification Number (DIN): Prior to establishment of a company, the “to be” directors of the company are required to obtain Director Identification Number (DIN) from the Ministry of Company Affairs (MCA) by making an online DIN application in form DIR 3 which is then needed to be approved by the DIN Cell of the MCA.
Digital Signature Certificate (DSC): Any one of the proposed director is required to obtain Digital Signature Certificate (DSC) for online submission of E- form with the concerned Registrar of Companies (ROC).
Step-II: Application for name approval of the proposed company to the ROC:
An online application for the availability of the proposed name (in the E-from INC-1), along with six proposed names in order of preference/option, each one indicating the main objective (principal activities) of the company, must be submitted to the ROC. The name of a private company should end with the word “Private Limited”.
Step-III: Drafting and Stamping of Memorandum and Articles of Association (MOA and AOA)
MOA and AOA are to be drafted in compliance with the provisions of the Act. Adequate stamp duty would be required to be paid thereupon based on the authorized capital of the company. The stamp duty on MOA and AOA must be paid along with the filing fee payable at the time of filing of company related documents.
Stage- IV: Incorporation Documents to be filled with the ROC
In the case of incorporation, after the name approval, the following forms have to be e-filed and must be submitted to the ROC after having been digitally signed by any of the proposed directors.
- INC-32– Simplified Proforma for Incorporating Company (SPICe).
- INC-33– E- Memorandum of Association.
- INC-34– E-Article of Association.
The ROC will scrutinize the above-mentioned documents and if necessary, directs the authorized person to make necessary corrections therein. The ROC after being satisfied that all the documents are complete issues the certificate for the initiation of the company, which is the conclusive proof of registration of the company in India.
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Documents Required To Start A Wholly Owned Subsidiary In India
Following documents are required to establish a wholly owned company in India:
- For an Indian National
- PAN Card (mandatory)
- Address proof like electricity bill, Aadhar card, etc.
- ID Proof like Voter ID, Aadhar card, driving license, etc.
- For a Foreign National
- Passport (mandatory)
- Address Proof (Document must be certified by the Indian Consulate)
- Photo ID Proof (Document must be certified by Indian Consulate)
All the aforementioned documents should be attested by a notary public in the country of residence of the applicant.
It is always beneficial, to be aware of all the regulatory framework before starting a business in India. To be specific, it is even more important for a foreign company to be acquainted with Indian laws, especially when they are planning to establish a wholly owned subsidiary in India as the risk is higher and the procedure is also a bit complicated.
It becomes a lot easier if one adopts the best option out of all and use the most beneficial modes of business available. One must also keep in mind all the sectors in which it is allowed to have a wholly owned subsidiary and then only approach for the same.
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