Wholly Owned Subsidiary in India or in Foreign - Meaning

Meaning of a Wholly Owned Subsidiary (WOS)

When an entity is 100% owned by another entity, it is called the wholly owned subsidiary of the entity who has made the 100% investment on its capital.

Wholly Owned Subsidiary under the Companies Act, 2013

The definition of 'wholly owned subsidiary' is  not given under the Act, but the definition of 'subsidiary' or 'subsidiary company' is provided under sub-section (87) of section 2 of the Act.

Reference has to be made to Section 2(87) while making interpretation of the meaning of wholly owned subsidiary.

Example

XYZ Limited has a paid-up share capital of Rs. 1,000,000 of 100,000 equity shares of Rs. 10 each.

ABC Limited is the shareholder of XYZ Limited. ABC Ltd owns 100,000 shares of XYZ Ltd.

XYZ Ltd will be considered as the wholly owned subsidiary of ABC Ltd.

Here, ABC Ltd is the parent company of XYZ Ltd.

Notes

Here, one important question arises as to how can a company own 100% shares in another company whereas in accordance with section 3, a company requires a minimum of two/seven persons to be formed?

For private company - min. 2 persons

For public company - min. 7 persons

For OPC - min. 1 person (only natural person allowed)

So, in many such cases of wholly owned subsidiaries, other shareholders are inducted just for name sake by allotting them one share each.

Consult with a company law expert to get their opinion in this matter.

Wholly Owned Subsidiary by Foreign entities in India

When an entity, which is registered/incorporated in a foreign country outside India, makes 100% foreign direct investment in an entity in India, the Indian entity is said to be the wholly owned subsidiary of that foreign entity.

Under FDI policy - only few sectors are allowed/permitted for 100% foreign direct investment.

Wholly Owned Subsidiary by Indian entities in Foreign

When an Indian registered entity makes 100% investment in an entity, which is registered/ incorporated in a foreign country under the laws of that country, then that foreign entity is said to be the wholly owned subsidiary of the Indian entity.