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Subsidiary Company

Subsidiary Company

“Subsidiary company” or “subsidiary”, in relation to any other company (that is to say the holding company), means a company in which the holding company—

(i) Controls the composition of the Board of Directors; or

(ii) Exercises or controls more than one-half of the total voting power either at its own or together with one or more of its subsidiary companies:

Provided that such class or classes of holding companies as  may be prescribed shall not have layers of subsidiaries beyond such numbers as may be prescribed. (Effective from 20-09-2017)

Explanation. —For the purposes of this clause, —

(a) A company shall be deemed to be a subsidiary company of the holding company even if the control referred to in sub-clause (i) or sub-clause (ii) is of another subsidiary company of the holding company;

(b) The composition of a company’s Board of Directors shall be deemed to be controlled by another company if that other company by exercise of some power exercisable by it at its discretion can appoint or remove all or a majority of the directors.

(c) The expression “company” includes anybody corporate;

(d) “Layer” in relation to a holding company means its subsidiary or subsidiaries.

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Key Benefits of Subsidiary Company

Market Access and Growth

Access to new markets:

A subsidiary allows direct entry into a new country's large or growing market, reaching a diverse customer base.

Long-term growth prospects:

It provides a platform for sustainable international growth by establishing a permanent presence.

Lower labor costs:

Foreign subsidiaries can leverage lower labor costs in the host country.

Tax incentives and benefits:

Companies can take advantage of local government subsidies, tax incentives, and grants to attract foreign investment.

Favorable tax treatment:

Foreign subsidiaries are separate tax entities, allowing for potential tax savings and benefits from double taxation avoidance treaties (DTAs).

Access to local capital:

As a domestic entity, the subsidiary can raise funds from local banks and financial institutions, reducing reliance on foreign exchange and potentially lowering financing costs.

Operational and Strategic Control
100% ownership and control:

Foreign companies can often own the entire equity of their subsidiary, retaining full control over operations, finances, and governance without needing local partners.

Intellectual property protection:

A subsidiary provides greater control over the parent company's intellectual property and internal processes.

Operational flexibility:

Subsidiaries allow companies to adapt operations to local market needs while aligning with the global corporate strategy.

Legal and Credibility Benefits
Limited liability:

Being a distinct legal entity, a subsidiary provides limited liability for the parent company, protecting its assets.

Enhanced local credibility:

Operating as an incorporated local entity builds trust and credibility with local customers, vendors, and authorities.

Simplified regulatory compliance:

A subsidiary follows local corporate laws directly, which can simplify and streamline regulatory compliance compared to other forms of foreign presence.

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