A Step-by-Step Guide to Subsidiary Incorporation
The process of incorporating a subsidiary company involves establishing a new legal entity that is owned and controlled by another existing company, referred to as the parent company. Here’s an overview of the process and provisions of incorporating a subsidiary company, along with some frequently asked questions (FAQs) related to this:
Process of Incorporating a Subsidiary Company
1. Decision and Planning
- The parent company decides to establish a subsidiary based on business objectives, expansion plans, or regulatory requirements. A thorough business plan and feasibility study may be conducted.
2. Name Reservation
- Choose a unique name for the subsidiary company and check its availability with the Registrar of Companies (ROC). Reserve the name as per the applicable regulations.
3. Drafting of Memorandum and Articles of Association (MOA & AOA)
- Prepare the MOA and AOA of the subsidiary company, outlining its objectives, share capital, internal governance structure, and operational framework.
4. Appointment of Directors
- Identify and appoint directors for the subsidiary company. Ensure compliance with the minimum directorship requirements prescribed by law.
5. Obtaining Director Identification Number (DIN) and Digital Signatures
- Obtain DIN for the appointed directors and digital signatures for signing electronic documents required for incorporation.
6. Filing of Incorporation Documents
- Prepare and file the necessary incorporation documents, including the MOA, AOA, declaration by directors, and other prescribed forms, with the ROC.
7. Payment of Fees and Stamp Duty
- Pay the requisite fees and stamp duty as applicable for the incorporation of the subsidiary company.
8. Issuance of Certificate of Incorporation (COI)
- Upon scrutiny and approval of the incorporation documents by the ROC, the subsidiary company will be issued a COI, indicating its legal existence.
9. Compliance Requirements
- Fulfill post-incorporation compliance requirements, such as obtaining a Permanent Account Number (PAN), Goods and Services Tax (GST) registration (if applicable), opening a bank account, and obtaining other licenses and permits as required for the business operations.
Provisions and FAQ's
The incorporation of a subsidiary company is governed by the provisions of the Companies Act, 2013, or the relevant corporate laws applicable in the jurisdiction where the subsidiary is established.
Yes, a foreign company can establish a subsidiary in India subject to compliance with the Foreign Exchange Management Act (FEMA), Reserve Bank of India (RBI) regulations, and other applicable laws.
A subsidiary company is required to comply with various legal and regulatory obligations, including maintenance of statutory registers, holding board meetings, filing of annual returns, financial disclosures, and compliance with corporate governance norms.
Generally, a subsidiary is considered a separate legal entity, and its liabilities are distinct from those of the parent company. However, under certain circumstances, such as piercing the corporate veil or involvement in fraudulent activities, the parent company may be held liable for the acts of its subsidiary.
Tax implications vary based on factors such as the nature of the business, transfer pricing regulations, tax residency status, and applicable tax rates. It’s advisable to seek advice from tax experts to understand and plan for the tax implications of incorporating a subsidiary.
Depending on the jurisdiction and legal requirements, it may be necessary to appoint at least one local director for the subsidiary company. Local directors can ensure compliance with local laws and regulations and represent the subsidiary’s interests effectively.