Subsidiary company: meaning, control test and compliance
A subsidiary is a company whose board or more than half of whose voting power is controlled by another company, under section 2(87) of the Companies Act.
Short answer
A subsidiary company is a company in which another company, the holding company, controls the composition of the board of directors or exercises or controls more than one-half of the total voting power, alone or with its other subsidiaries. It is defined in section 2(87) of the Companies Act, 2013. A wholly owned subsidiary is fully owned by its parent.
- Defined in
- Section 2(87), Companies Act 2013
- Control test
- Board composition, or more than 50% of total voting power
- Small company status
- Not available to subsidiaries
- Foreign parent
- Investment reported under FEMA, e.g. Form FC-GPR
How subsidiaries work
A subsidiary is a separate legal entity with its own directors, accounts and tax obligations, even if one shareholder owns it completely. The holding company's liability is limited to its investment, unless it gives guarantees or courts lift the corporate veil. A private company needs at least two members, so a wholly owned subsidiary usually has a nominee shareholder holding one share for the parent.
Indian subsidiaries of foreign companies
Foreign companies commonly enter India through a wholly owned subsidiary incorporated as a private limited company. The investment must follow the FDI rules for the sector, and the company must report share allotments to the RBI in Form FC-GPR within 30 days and file the annual return on foreign liabilities and assets. At least one director must be resident in India. Transactions with the foreign parent, such as service fees or royalties, may attract transfer pricing documentation under the income-tax law.
Why it matters for founders
Because subsidiaries are excluded from the small company definition, they follow fuller compliance: four board meetings a year, a cash flow statement and the full annual return. Budget for this when you set up a subsidiary, and make sure intra-group agreements, approvals for related party transactions and FEMA filings are in place from the start.
Related services
Sources
- India Code: official repository of central Acts
- Ministry of Corporate Affairs (MCA) portal
- DPIIT: Consolidated FDI Policy
Written by the Refogo Editorial Team from the official sources above and checked on 2026-10-31. Laws, rates and due dates change, and authorities often extend deadlines, so confirm your own case with a qualified professional. This is general information, not legal or tax advice. Read our editorial policy or report an error to support@refogo.com.
Common questions
Is a subsidiary liable for the debts of its parent?
No. Each company is a separate legal person, so a subsidiary is not liable for its parent's debts unless it has given a guarantee or security.
What is a step-down subsidiary?
A subsidiary of a subsidiary. Indian rules generally limit companies to two layers of subsidiaries.
Can a foreign company own 100% of an Indian subsidiary?
Yes, in sectors where the FDI policy allows 100% under the automatic or government route, with a nominee holding one share.