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Setting Up Subsidiaries
Setting Up Subsidiaries involves establishing a company that is controlled by a parent company, either in the same country or overseas. A subsidiary operates as an independent legal entity but is overseen by the parent company. This process is governed by the Companies Act, 2013, Foreign Exchange Management Act (FEMA), 1999, and other relevant laws.
Subsidiaries are vital for expanding business operations, exploring new markets, or diversifying products and services. They allow companies to retain control while maintaining operational flexibility. Subsidiaries can be wholly-owned (100% ownership by the parent company) or joint ventures (shared ownership).
Important
1. Business Expansion: Facilitates entry into new markets or geographies.
2. Operational Independence: Ensures flexibility while maintaining parent company oversight.
3. Tax Efficiency: Optimizes tax planning through strategic subsidiary structures.
4. Risk Mitigation: Isolates liabilities and risks from the parent company.
5. Enhanced Branding: Strengthens market presence under a distinct legal entity.
Applicability
1. Domestic Subsidiaries : Set up within India to expand or diversify business operations.
2. Foreign Subsidiaries : Indian companies can establish subsidiaries abroad to enter international markets.
3. Wholly-Owned Subsidiaries (WOS) : Parent company holds 100% ownership of the subsidiary.
4. Joint Venture Subsidiaries : UOwnership is shared between the parent company and other investors or entities.
Key Compliance Requirements
1. Approval for Name Reservation : File RUN (Reserve Unique Name) or SPICe+ Form to secure the subsidiary’s name.
2. Drafting MOA and AOA : Prepare the Memorandum of Association (MOA) and Articles of Association (AOA).
3. Filing with ROC : Submit incorporation forms, including SPICe+, AGILE PRO-S, and INC-9.
4. Compliance with FEMA (for Foreign Subsidiaries) : Adhere to FEMA regulations for outbound investments.
5. Shareholding Structure : Define shareholding details, including ownership percentage.
6. Appointment of Directors : Appoint directors for the subsidiary, with at least one resident Indian director for Indian subsidiaries.
7. Tax Registration : Obtain PAN, TAN, and GST registrations for domestic subsidiaries.
8. Filing Post-Incorporation Forms : File INC-20A (for commencement of business) and other applicable forms.
Documents Required
For Domestic Subsidiaries
For Foreign Subsidiaries
Features
Features & Benefits of Setting Up Subsidiaries
Operational Flexibility
Limited Liability
Tax Efficiency
FEMA Compliance
Setting Up Subsidiaries
Flexible Ownership Models
Distinct Branding
Asset and Liability Segregation
Compliance Oversight
Global Expansion
Comparison with Related Services
| Feature | Domestic Subsidiary | Foreign Subsidiary | Branch Office |
|---|---|---|---|
| Legal Entity | Independent company | Independent company | Not a separate legal entity |
| Ownership Structure | Wholly or partially owned | Wholly or partially owned | Fully controlled by parent |
| Regulatory Body | ROC, MCA | Host Country Regulator | RBI, FEMA |
| Taxation | Corporate Tax Rates | Host Country Tax Rates | Parent Company Taxable |
Frequently Asked Questions
What is the difference between a subsidiary and a branch office?
A subsidiary is an independent legal entity, while a branch office is an extension of the parent company and not legally separate.
Can a foreign company set up a subsidiary in India?
Yes, foreign companies can establish subsidiaries in India, subject to FEMA and FDI regulations.
What is a wholly-owned subsidiary (WOS)?
A WOS is a subsidiary where the parent company owns 100% of the share capital.
Is RBI approval required for setting up foreign subsidiaries?
Yes, RBI approval is required under FEMA guidelines for outbound investments.
WHow long does it take to set up a subsidiary in India?
The process typically takes 4-6 weeks, including name approval, incorporation, and post-compliance filings.
Are there tax benefits to setting up subsidiaries?
Yes, subsidiaries can optimize tax structures and benefit from double taxation avoidance agreements (DTAA) for foreign subsidiaries.