Introduction of Subsidiary companies act 2013
A subsidiary company is a company that is controlled by another company, known as the parent company. The Subsidiary Companies Act 2013 governs the formation, operation, and regulation of subsidiary companies in India. In this blog, we will discuss the key provisions of the Act and their implications.
- Definition of a Subsidiary Company According to the Act, a company is considered a subsidiary of another company if the latter controls the former. Control is defined as the ability of the parent company to appoint the majority of the directors or to control the management or policy decisions of the subsidiary.
- Formation of a Subsidiary Company The Act lays down the procedures for the formation of a subsidiary company. A subsidiary company can be formed by either incorporating a new company or acquiring an existing company.
- Financial Reporting The Act requires every subsidiary company to prepare and submit financial statements to its parent company. The financial statements must be audited by a qualified auditor and must comply with the applicable accounting standards.
- Board of Directors The Act stipulates that the board of directors of a subsidiary company must have at least one director who is a resident of India. The parent company is allowed to appoint the majority of the directors of the subsidiary company.
- Related Party Transactions The Act requires all related party transactions to be disclosed in the financial statements of the subsidiary company. Related party transactions are transactions between the subsidiary company and its parent company or any other company in which the parent company has a significant interest.
- Restriction on Investment The Act imposes restrictions on the investment of a subsidiary company in its parent company or any other company in which the parent company has a significant interest. Such investments are allowed only if they are made through the approval of the board of directors of the subsidiary company and are in compliance with the applicable laws and regulations.
- Amalgamation and Merger The Act provides for the amalgamation and merger of subsidiary companies. Such mergers and amalgamations must be approved by the board of directors of both the parent company and the subsidiary company and must comply with the applicable laws and regulations.
In conclusion
The Subsidiary Companies Act 2013 lays down the legal framework for the formation, operation, and regulation of subsidiary companies in India. The Act aims to ensure transparency and accountability in the functioning of subsidiary companies and protect the interests of all stakeholders. Companies that operate as subsidiaries or are planning to do so must comply with the provisions of the Act to avoid legal repercussions.
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Frequently Asked Questions (FAQs)
Q. What is a subsidiary company under the Subsidiary Companies Act 2013?
A subsidiary company is a company that is controlled by another company, known as the parent company. Control is defined as the ability of the parent company to appoint the majority of the directors or to control the management or policy decisions of the subsidiary.
Q. What are the key provisions of the Subsidiary Companies Act 2013?
The key provisions of the Subsidiary Companies Act 2013 include the definition of a subsidiary company, the procedures for the formation of a subsidiary company, financial reporting requirements, the composition of the board of directors, disclosure of related party transactions, restrictions on investment, and provisions for amalgamation and merger.
Q. Is it mandatory for a subsidiary company to prepare and submit financial statements to its parent company?
Yes, it is mandatory for a subsidiary company to prepare and submit financial statements to its parent company. The financial statements must be audited by a qualified auditor and must comply with the applicable accounting standards.
Q. Can a parent company appoint the majority of the directors of its subsidiary company?
Yes, a parent company is allowed to appoint the majority of the directors of its subsidiary company.
Q. Are there any restrictions on the investment of a subsidiary company in its parent company or any other company in which the parent company has a significant interest?
Yes, there are restrictions on the investment of a subsidiary company in its parent company or any other company in which the parent company has a significant interest. Such investments are allowed only if they are made through the approval of the board of directors of the subsidiary company and are in compliance with the applicable laws and regulations.
Q. Can subsidiary companies be merged or amalgamated with other companies?
Yes, the Subsidiary Companies Act 2013 provides for the amalgamation and merger of subsidiary companies. Such mergers and amalgamations must be approved by the board of directors of both the parent company and the subsidiary company and must comply with the applicable laws and regulations.
Q. What is the objective of the Subsidiary Companies Act 2013?
The objective of the Subsidiary Companies Act 2013 is to ensure transparency and accountability in the functioning of subsidiary companies and protect the interests of all stakeholders. The Act aims to regulate the formation, operation, and regulation of subsidiary companies in India.
