Subsidiary of a Foreign Company- Status Under Companies Act, 2013

4 July 2014 • CS Samrish Bhanja

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Subsidiary of a Foreign Company- Status Under Companies Act, 2013

4 July 2014 • CS Samrish Bhanja

Status of a subsidiary of a Foreign Company as per Companies Act, 2013
With the legislation of the new Act, it has been clarified that a body corporate incorporated outside India is not prohibited from incorporating subsidiaries as private/public companies. This implies that the earlier criteria (Sec 4(7) of the Old Act explained below) of automatically deeming certain private companies as public now cease to exist and a company’s status would be directly determined from the manner of its formation..

Status of existing subsidiaries
Further, existing private/public companies (subsidiaries) will continue to retain their status and the change in law will not affect them in any manner (MCA Circular No. 23/2014). This implies that deemed public companies under the old Act will continue with their tag of public company even though under the new Act they might be categorized as a private company..

Sec 4(7) of the Old Act
According to Sec 4 (7) of Companies Act, 1956 a private company (subsidiary) incorporated in India by a body corporate incorporated outside India would qualify as a public company if the following conditions were fulfilled:.

  • The body corporate incorporated outside India should be of such a nature that if incorporated in India it would acquire the status of a public company.
  • The entire share capital of the private company should not be held by the body corporate incorporated outside India either alone or together with one or more other such body corporate(s) incorporated outside India.

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8 comments

  1. What is the status of an Indian WOS of a Holding Company incorporated abroad?Will it b treated as a deemed public company?Holding Company is a Public Ltd. Company as per the law of their country.
    Indian WOS was incorporated a Pvt. Ltd. Company.

    1. A subsidiary private company of a public company shall be deemed to be public company as per the Companies Act, 2013. However, the public company shall derive its meaning with respect to the Companies Act, 2013 where “company” means a company registered under the Companies Act, 2013 or such previous act.

      Considering the above, since the holding company is incorporated outside India as per law of their company, it won’t be covered under the definition of “company” as defined in the Act.

      Hence, the Indian WOS of a Holding Company incorporated abroad shall be treated as private company only as stated in its articles.

  2. Hello Sir,
    I have one query, please guide.

    Query:
    Can Indian Parent Company take Loan or Advances from Foreign Subsidiary Company?, If yes than as per the which guideline?

    1. Sir, since the Company has equity investment outside India (ODI), the parent Company shall have to file returns: Annual Performance Report (APR) and also adhere to ECB Guidelines (for loan form Foreign Subsidiary) if the Parent Company and the Subsidiary Company are covered under Eligible Borrower & Eligible Lender respectively.

  3. Hello Sir,
    The shareholding pattern of one Company, which is a private limited company is as follows:-
    1. One Foreign Public Company, holding 53.60% shares
    2. One Foreign Private Company, holding 46.40% shares
    3. 8 individuals, residents in India holding 0.001% of shares
    In such as case, kindly let me know whether this company would be considered as a private company, subsidiary of public company as per section 4(7) of the Companies Act, 1956 and as per section 2(71) of the Companies Act, 2013 or not.
    Thanks.

  4. Hello Sir,

    The shareholding pattern of one Company, which is a private limited company is as follows:-
    1. One Foreign Public Company, holding 53.60% shares
    2. One Foreign Private Company, holding 46.40% shares
    3. 8 individuals, residents in India holding 0.001% of shares

    In such as case, kindly let me know whether this company would be considered as a private company, subsidiary of public company as per section 4(7) of the Companies Act, 1956 and as per section 2(71) of the Companies Act, 2013 or not.

    Thanks.

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