WHOLLY OWNED SUBSIDIARY COMPANY
A wholly owned subsidiary is a company that is entirely owned and controlled by another company, known as the parent company or holding company. In this structure, the parent company owns 100% of the subsidiary’s shares, giving it full control over its operations, management, and strategic decisions.
The formation of a wholly owned subsidiary allows the parent company to expand its business activities into new markets, industries, or geographical regions while maintaining complete control over the subsidiary’s operations. This structure also provides the parent company with the opportunity to diversify its business interests and mitigate risks.
Wholly owned subsidiaries often operate independently from their parent companies, with their own management teams, employees, and operational processes. However, they remain under the ultimate authority and direction of the parent company, which may set specific goals, strategies, and performance targets for the subsidiary to achieve.
Overall, a wholly owned subsidiary enables the parent company to leverage its resources, expertise, and brand reputation to capitalize on new business opportunities and drive growth while maintaining full ownership and control over the subsidiary’s activities.
Criteria to start a Wholly Owned Subsidiary
Starting a wholly owned subsidiary involves several steps and criteria, which may vary depending on the jurisdiction and specific industry. However, some general minimum criteria to start a wholly owned subsidiary typically include:
- Legal Requirements: You must comply with the legal and regulatory requirements of the jurisdiction where you plan to establish the subsidiary. This may involve registering the subsidiary with the appropriate government authorities, obtaining necessary licenses and permits, and adhering to corporate governance regulations.
- Capitalization: You need to ensure that the subsidiary has adequate capital to fund its operations and meet its financial obligations. This may involve injecting funds from the parent company or obtaining financing from external sources.
- Business Plan: Develop a comprehensive business plan outlining the subsidiary’s objectives, target market, products or services, marketing strategies, operational plans, and financial projections. A well-defined business plan will help guide the subsidiary’s activities and facilitate decision-making.
- Corporate Structure: Determine the corporate structure of the subsidiary, including its legal form (e.g., corporation, limited liability company) and organizational hierarchy. Define the roles and responsibilities of key personnel, such as directors, officers, and employees.
- Governance and Compliance: Establish corporate governance policies and procedures to ensure transparency, accountability, and compliance with applicable laws and regulations. This may include adopting a code of conduct, implementing internal controls, and conducting regular audits.
- Tax Considerations: Consider the tax implications of establishing a wholly owned subsidiary, including corporate income taxes, sales taxes, and other levies. Consult with tax advisors to optimize the subsidiary’s tax structure and minimize tax liabilities.
- Intellectual Property Rights: Protect intellectual property rights associated with the subsidiary’s products, technologies, brands, and other assets. This may involve registering trademarks, patents, copyrights, and trade secrets to safeguard against infringement and unauthorized use.
- Market Analysis: Conduct market research to assess the demand for the subsidiary’s products or services, identify competitors, and evaluate potential growth opportunities. Develop a competitive strategy to differentiate the subsidiary’s offerings and capture market share.
- Human Resources: Recruit and hire qualified personnel to staff the subsidiary’s operations, including management, sales, marketing, finance, and other functional areas. Implement employee training programs and performance management systems to enhance productivity and morale.
- Risk Management: Identify and mitigate risks associated with the subsidiary’s operations, such as market volatility, regulatory changes, supply chain disruptions, and cybersecurity threats. Develop contingency plans and insurance coverage to minimize the impact of adverse events.
Requirements to Set Up
- Minimum requirement of 2 directors, director must acquire DIN Director Identification Number and DSC Digital Signature Certificate.
- Out of 2 directors one must be resident of India
Key features
- funding of this companies is usually from pooled capital or loan from outsiders
- In case parent company is foreign company, subsidiary company follow Indian laws and it is governed by Companies Act,2013.
- It is treated as Domestic Company, which means it enjoy all deductions, allowances as per Tax Act
- In same case 100% FDI is permitted without approval .
- Wholly owned subsidiaries allow parent companies to allocate resources, such as capital, talent, and technology, to support specific business objectives or growth initiatives.
Benefits of a Wholly-Owned Subsidiary
- It help parent companies mitigate risks associated with their core business activities.
- By structuring operations through subsidiaries, parent companies can optimize their tax liabilities, minimize exposure to tax risks, and maximize after-tax profits.
- Wholly owned subsidiaries provide parent companies with opportunities to experiment with new business models, technologies, or market strategies without risking the core operations of the parent company.
- Wholly owned subsidiaries allow parent companies to enter new markets, regions, or industries where they may not have had a presence before.
- Transparency enhances accountability, facilitates performance evaluation because of maintaining separate financial records and reporting
Conclusion
Wholly owned subsidiary offers a strategic advantage for parent companies by allowing them to maintain full control over their operations while expanding their market presence. These subsidiaries enable parent companies to efficiently manage resources, streamline operations, and implement uniform policies across different regions. They also provide a means to mitigate risks, optimize tax burdens, and ensure regulatory compliance. Through wholly owned subsidiaries, parent companies can achieve geographic diversification, focused management, and enhanced brand protection, ultimately driving growth and increasing profitability while retaining complete ownership and decision-making authority.
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