A subsidiary company is a company whose control lies with another company. The company that holds the control is termed as a Parent Company or Holding Company. The Holding company owns a majority of the shares of the subsidiary company, and hence it can exercise control as the major shareholder.
The holding company holds an interest in the subsidiary company. The company in which the holding company holds 100% share capital is termed as a wholly-owned subsidiary. The subsidiary company can be either established or acquired by the holding company.
Registration of a Subsidiary Company
Application in the prescribed form:
SPICe+ Form, which is an integrated form for the reservation of name and other services, is to be filled for the registration of subsidiary companies.SPICe+ form has two parts: –
Part A – Name Reservation (New Companies)
1. Incorporation of Company
2. Application For DIN
3. PAN and TAN Application
4. EPFO and ESIC Registration
5. GSTIN Application
6. Bank Account Opening
7. Professional Tax Registration(Applicable to Companies in Maharashtra)
The following are the documents that will be required for the filing of the application. The documents are the same as required for the incorporation of the company:
a. Company Related
– Memorandum of Association and Articles of Association
– Proof of Address of registered place of Business that is if the rented property, then rent agreement and if the owned property then copy of ownership documents
– Copy of Utility Bills
– Copy of resolution passed by the promoter company – Capital Layout of company – Copy of certificate of incorporation in case of foreign corporate
b. Directors and Shareholders Related
– Digital Signature Certificate (DSC) and Director Identification Number (DIN) for the directors and designated shareholders
– Proof of identity and address for Directors and Shareholders
– Photographs of Directors and Shareholders
– The interest of first directors in other entities.
– Declaration by Directors and Shareholders
Why incorporate an Indian Subsidiary Company?
Limited Liability: The liability of the Directors and the members of the Indian Subsidiary Company is just like the Private Limited Company is limited to their shares. This means if the company is suffering from any loss and is facing any financial distress then because of any business activity, then the personal assets of the shareholders or the members of the directors will not be at risk.
Perpetual succession: The life of the business is not affected by the status of the shareholders and even after the death of the shareholder the Indian Subsidiary company will continue to exist.
Brand value: The brand value of the company is increased as the employees will feel secure in joining the Private Limited Company, the vendors will feel secure in offering credit and the investors will be relieved while investing. The new-age startups can become a multibillion company in years due to the high brand value of the company.
Expansion: Here the scope of expansion is higher as it is easy to raise the capital from a venture capitalist, the financial institution, angel investors, and the advantages of limited liability.
Foreign direct investment: 100% Foreign Direct Investment is allowed in several business activities and industries through automated route without any prior approval. But FDI is not allowed in proprietorships or partnerships. FDI in a Limited Liability Partnership also requires government approval.
What are the penalties for non-compliance?
Penalty for Failing to Furnish Chartered Accountant Report
Entities that enter into an International transaction are required to obtain a report from a Chartered Accountant. Failing to furnish a report from the CA can lead to a penalty of Rs. 1 lakh.
Penalty for Not Maintaining Documents
Suppose the entity fails to maintain the documents or fails to report or even furnishing incorrect information can attract a penalty of 2 % of the value of each transaction where the non-compliance exists.
Penalty for Not Producing Documents
The tax authorities may in any proceeding require any person who has entered into the international transactions to furnish any related information or document.
The document must be furnished within 30 days from the date of receipt of a notice.
Failure to furnish can attract a penalty equal to 2 % of the value of the transaction specified for each failure.