Formation of a subsidiary is undoubtedly a smart and favored means for extending one’s business to foreign countries of choice. With a growth rate of more than 7 %, India is considered to be the most preferred destination for business. While operation from India, one can have access to 1.3 billion population with the world's most skilled manpower.
A subsidiary is an entity registered in a foreign nation. For setting up a subsidiary, the parent company must own at least 50% of the subsidiary. When the holding company owns 100% of the subsidiary then the subsidiary is known as a wholly-owned subsidiary of the parent company.
A subsidiary is a partially or even a wholly-owned company by another large corporation. This parent corporation must have its headquarters in another country. A subsidiary works as per the laws of the country in which it is incorporated.
The parent company, however, has to carry the financials of the foreign subsidiary on its books. The foreign subsidiary has to obey the laws of the country they are operating in.
For example, IBM India private limited is a subsidiary of IBM.
A foreign company can create an Indian subsidiary with the following company structure:
- Private limited company: - This company structure is not open to the public offering but enjoys other benefits over Public Company given by the Companies Act, 2013.
- Public limited company: - This company structure is where the public offering is possible but required to comply with few more rules and regulations as compared to Pvt. Ltd as specified by the Companies Act, 2013.
- LLP: - This company structure is where the liabilities of partners are limited.