Subsidiary Company

A subsidiary company is a company that another company (the holding company) controls, as defined in Section 2(87) of the Companies Act, 2013. Control exists where the holding company either controls the composition of the subsidiary's Board of Directors, or exercises or controls more than one-half of the total voting power, on its own or together with one or more of its own subsidiaries. A wholly owned subsidiary (WOS) is one whose entire share capital is held by the holding company, either directly or through nominees.

Legal basis

The definition sits in Section 2(87), read with Section 2(46) which defines the "holding company". Following the Companies (Amendment) Act, 2017, the test for the second limb is "total voting power" rather than the earlier "total share capital", so preference-share economics do not by themselves create a subsidiary relationship.

Key features

• The subsidiary keeps a separate legal identity, its own CIN, board and statutory filings with the MCA.
• Under Section 19, a subsidiary generally cannot hold shares in its holding company, and any such allotment is void, subject to narrow exceptions.
• The holding company must prepare consolidated financial statements including the subsidiary under Section 129(3).

Layers restriction

Under the proviso to Section 2(87) and the Companies (Restriction on number of Layers) Rules, 2017, a company generally cannot have more than two layers of subsidiaries. One layer of a wholly owned subsidiary is not counted for this limit, and banking, NBFC, insurance and government companies are exempt.

Who it applies to

The concept commonly arises for Indian arms of foreign parents (an Indian WOS), corporate groups structuring operations, and joint ventures where one partner holds majority voting control.