What is a wholly owned subsidiary?
A wholly owned subsidiary is a company whose entire share capital is held by one holding company. It is still a separate company. The holding company owns the shares. It does not step into the subsidiary’s contracts.
What is it?
Section 2(87) defines a subsidiary by control of the board or by ownership of more than half the voting power. Wholly owned is the case where the holding company holds the whole of the share capital. How a foreign company sets up an Indian subsidiary is on the foreign-subsidiary page. An Indian company can hold an Indian subsidiary on the same definition.
How can one parent own all the shares?
A one person company can have the holding company as its only member. Any other private company needs at least two members, on the private-company page. The second member can hold one share for the parent. That person is on the register, and the parent’s beneficial interest is disclosed. The parent still owns the economic interest in the whole capital.
What does ownership not do?
It does not make the parent liable for the subsidiary’s loan. A lender who wants the parent’s promise takes a guarantee. It does not merge the two sets of accounts into one company. It does not, by itself, satisfy the foreign-exchange rules when the parent is outside India.
Frequently asked questions
Four questions cover the separate person, two members, creditors, and a foreign parent.
Is the subsidiary the same person as the parent?
No. Each company is incorporated separately. The parent owns the shares. It does not become the subsidiary.
Can a private company have only the parent as a member?
A one person company can have one member. Any other private company needs at least two members. The second member may hold a share for the parent, and that beneficial interest is disclosed.
Do the parent’s creditors automatically take the subsidiary’s assets?
No. They are different persons. A guarantee, or a charge the subsidiary actually gave, is what creates a claim. Ownership of the shares is not that claim.
Is a foreign parent a different definition?
The definition of a subsidiary is the same. A foreign company that incorporates an Indian subsidiary still follows the foreign-exchange rules for the investment. The label does not replace those rules.
Sources
A subsidiary is section 2(87) of the Companies Act, 2013. Wholly owned means the holding company owns the whole share capital. A foreign company’s Indian subsidiary is a separate guide.