WHOLLY OWNED SUBSIDIARY
If you have done enough research on the market and want to set up a permanent establishment in India then you can form a Wholly Owned Subsidiary company in India. It is one of the strategic modes of operating business in India.
Wholly owned subsidiaries are fully owned by the parent company. This means parent company owns 100% of the subsidiary’s shares. Now, since the parent company holds all the shares of the subsidiary company, it gains 100% control over the subsidiary. It gains the right to appoint the subsidiary’s board of directors, who controls the subsidiary.
A wholly owned subsidiary can belong to the same industry as that of the parent company or it can belong to a different industry altogether.
A Wholly Owned Subsidiary company is an entity in which a foreign company has made 100% FDI (Foreign Direct Investment) by way of an automatic route. For example, if XYZ Inc. Canada owns 100% shares in ABC Pvt. Ltd., then ABC Pvt. Ltd. becomes the wholly owned subsidiary company of XYZ Inc. Canada.
A wholly owned subsidiary company is treated as Indian Company under the Income Tax Act. It is also eligible for all benefits, exemptions and deductions that are applicable to any other Indian Company.
A foreign company can set up a wholly owned subsidiary company in India. This can be done by acquiring entire i.e. 100% shares of the subsidiary company. A foreign company can set up its operations in India only in areas where 100% FDI is permitted under the automatic route.
Prerequisites to set up a wholly owned subsidiary in India are as follows:
- (need to check)Minimum two shareholders are required in order to incorporate a company.
- Minimum two directors are required, one of whom must be an Indian resident. It is mandatory that all the directors must possess DIN (Director Identification Number).
All the directors must acquire DSC (Digital Signature Certificate).
Some of the key features of the wholly owned subsidiary company are:
- A wholly owned subsidiary company in India is regulated by the provisions of Companies Act.
- A wholly owned subsidiary company in India is permitted to undertake all sorts of business activities in India such as manufacturing, marketing, service industry, etc.
- A wholly owned subsidiary company does not need a prior approval of Reserve Bank of India if it is already approved of 100% Foreign Direct Investment (FDI).
- A wholly owned subsidiary company in India is treated as an Indian company under Income tax laws. Moreover, it is eligible for all the benefits, exemptions and deduction as applicable to any other Indian company.
- The funding of a wholly owned subsidiary company in India can be made in the form of loan and share capital.