Definition and Legal Identity

• A subsidiary is a company in which another company holds a significant shareholding, generally more than 50% of the equity.
  
• It is a distinct legal entity, registered under the Companies Act, 2013.
  
• It can own property, incur liabilities, and enter into contracts independently.
  
• It is treated separately from the parent company in terms of taxation and legal responsibilities.
  
• The parent company retains control through its shareholding or management influence.
  

Ownership and Control

• Wholly-owned subsidiaries have 100% of their shares owned by the parent company.
  
• Partial subsidiaries have a minimum of 51% ownership held by the parent.
  
• The parent company may appoint directors and key decision-makers in the subsidiary.
  
• Strategic and financial decisions are generally aligned with the parent company’s goals.
  
• Control may extend to policies, branding, and operational models.
  

Registration and Compliance

• Subsidiary companies must be incorporated under Indian laws, typically as Private Limited or Public Limited companies.
  
• They require approval from the Ministry of Corporate Affairs (MCA).
  
• Must adhere to Indian accounting standards and tax regulations.
  
• Filings include annual returns, financial statements, and statutory disclosures.
  
• Foreign subsidiaries may require approval from the RBI and compliance with FEMA guidelines.
  

Business and Tax Benefits

• Subsidiaries help international companies access the Indian market without setting up a branch.
  
• They can enjoy various tax incentives based on location and sector.
  
• Limited liability ensures the parent company’s risk is contained.
  
• Profits can be retained or repatriated, subject to Indian regulations.
  
• Subsidiaries can benefit from government schemes and local sourcing advantages.
  

Key Differences from Other Entities

• Unlike branches or liaison offices, subsidiaries have complete operational freedom.
  
• They are treated as domestic companies for legal and tax purposes.
  
• They can engage in all lawful business activities without restriction.
  
• Subsidiaries must maintain separate books of accounts and statutory records.
  
• They are subject to corporate governance norms applicable to Indian companies.