Wholly Owned Subsidiaries of Public Limited Companies

Introduction
A wholly owned subsidiary is a company in which 100% of the share capital is held by another company, making the parent company the sole owner and controller of the subsidiary. In the context of Public Limited Companies, creating wholly owned subsidiaries allows for business expansion, risk diversification, and operational specialization. These subsidiaries can be established domestically or in foreign jurisdictions, depending on the parent company’s strategic objectives. This article explains the concept, legal structure, and significance of wholly owned subsidiaries for Public Limited Companies under Indian corporate law.

Meaning of Wholly Owned Subsidiary
A wholly owned subsidiary (WOS) is a corporate entity whose entire equity is owned by another company, referred to as the holding or parent company. In the case of Public Limited Companies, this means that the parent public company holds 100% of the shares in the subsidiary, giving it full control over decisions, management, and profits.

Legal Framework
The creation and governance of wholly owned subsidiaries are governed by the Companies Act, 2013. Section 2(87) defines a subsidiary company and sets out conditions under which a company becomes a subsidiary, including shareholding and control of the board. Public Limited Companies can incorporate or acquire wholly owned subsidiaries through fresh incorporation or acquisition of all shares of an existing company.

Objectives of Setting Up a WOS
Public Limited Companies establish wholly owned subsidiaries for various strategic reasons:

• Geographic expansion without dilution of control
  
• Segregation of business functions or risk areas
  
• Tax efficiency and regulatory benefits
  
• Simplified management and direct ownership
  
• Asset protection by isolating liabilities from the parent entity
  

This structure enables operational flexibility while maintaining corporate control.

Formation of a Wholly Owned Subsidiary
A WOS can be created in two ways:

1. Incorporation: The Public Limited Company incorporates a new company under the Companies Act and subscribes to the entire share capital.
   
2. Acquisition: The Public Limited Company acquires all existing shares of another company, converting it into a wholly owned subsidiary.
   

In either case, the new company must comply with the statutory requirements for incorporation, including obtaining a Certificate of Incorporation and PAN, TAN, GST registrations, and opening a bank account.

Types of Wholly Owned Subsidiaries
A wholly owned subsidiary can be:

• Domestic: Formed and operating within India.
  
• Foreign: Formed under the laws of a foreign country, often to expand global operations or access new markets.
  

Foreign WOS are subject to regulations under the Foreign Exchange Management Act (FEMA) and Reserve Bank of India (RBI) guidelines for overseas direct investment (ODI).

Governance and Compliance Requirements
A wholly owned subsidiary, though controlled by the parent, remains a separate legal entity and must comply with:

• Filing of annual returns and financial statements
  
• Conducting board and shareholder meetings
  
• Maintaining statutory registers
  
• Tax filings and regulatory disclosures
  
• Appointment of auditors and adherence to corporate governance norms (especially if it’s a public subsidiary)
  

The parent company may also be required to consolidate the accounts of the subsidiary as per Indian Accounting Standards (Ind AS 110).

Advantages of Wholly Owned Subsidiaries

• Complete control over subsidiary operations
  
• Confidentiality and consistency in business decisions
  
• Faster decision-making and operational agility
  
• Stronger brand integration with the parent company
  
• Efficient transfer of resources and technology
  

These advantages make WOS an ideal structure for long-term business expansion without third-party interference.

Conclusion
A wholly owned subsidiary offers Public Limited Companies an effective structure for expanding operations while maintaining total ownership and control. Legally distinct yet strategically aligned, these subsidiaries allow companies to manage risk, enter new markets, and operate with greater autonomy. By complying with regulatory requirements and aligning business goals, wholly owned subsidiaries contribute to the growth and diversification of the parent Public Limited Company.

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