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Overview on Wholly-owned subsidiary Vs. Merger in India

Wholly-owned subsidiary Vs. Merger in India

A wholly-owned subsidiary means an entity in which a foreign company called a parent or holding company owns the whole share capital. Although the Companies Act of 2013 does not fully define the phrase wholly-owned subsidiary, several clauses relating to a foreign company and its registration provide context for what this form of company registration entails. A wholly-owned subsidiary firm can be established in India in a variety of ways. The following are some examples:

1.Private Company.

2.Company with a share capital limit.

3.Limited Liability Company (LLC).

4. Limited-liability corporation.

In India, a merger is a tool that businesses utilize to expand their operations. This is frequently taken up by a company in order to increase long-term profitability. In India, a merger is defined as the joining of two or more industries or firms. In a brief, it means being absorbed by something else and losing one’s individual identity. There is no legal definition of merger under the Companies Act. In India, however, the provisions of Section 390 to Section 394A, Section 395, Section 396, and Section 396A are used to deal with merger schemes.

Registration:

1. Wholly-Owned Subsidiary:

A wholly owned subsidiary company of a foreign company is registered in India in following steps:

  • Digital Signature Certificate (DSC) application: 1. A digital signature is required for all directors from the Indian subsidiary company. A practical chartered accountant or company secretary in India is required to attest to the DSC form.
  • For the incorporation and naming of the foreign company, the applicant company shall be required to submit Form 1A to the Registrar of Companies (ROC). A further approval of a chartered accountant or a company secretary must be submitted by the applicant.

The next step in the incorporation process is to approve the name.

Requesting a Director Identification Number (DIN):

  • Apply for a DIN using Form DIN-1 and the following documents:
      1. Passport
      2. two passport-sized photos
      3. An affidavit in the form prescribed by the statutes
      4. Current occupation or business of the company’s directors
      5. Directors’ educational qualification
      6. Documents posted from the director’s home country, if he or she is from another country.
  • Form DIN-1 must be properly attested by an Indian Company Secretary or Chartered Accountant.
  • Registering the wholly-owned company: All required  documents and the Memory of Associations ( MOA) and the Articles of Associations must be submitted by the incorporating company (AOA). By paying the stamp fees which represent 15 percent of the authorized capital of the company to be incorporated, the Memorandum of Association of the proposed company must be correctly stamped. The Registrar shall thoroughly verify the documents filed once both the stamp duty and the ROC fees are paid. The ROC- shall approve the following :
    • Form DIR-12 which must be approved in a straightforward way.
    • Thorough verification of Form INC-7 is required.
    • Form INC-22 must also be approved through the straight process.
    • If the Registrar of Companies recommends any changes to the application, the company is required to take the necessary steps.
    • Once the Registrar approves the application, an Incorporation or Registration Certificate is emailed to the applicant.

2. Merger in India:

In India, the merger procedure is governed by the courts, which can be time consuming and complicated. In India, the following steps are involved in the merger:

  • Approval under MOA: Whether or not the memorandum permits merger in India should be carefully monitored. If not, it should also include an Object Clause.
  • Drafting of the merger scheme in India: The transferor and transferee companies must both draft  a merger scheme document. The following details are required in the scheme.
    • The transferor’s detials.
    • Transfer company details.
    • Main purposes of both companies’ memorandum.
    • Brief description of the reasons for the Indian merger.
    • Clause of definition.
    • Business nature.
    • The shares related to the company details.
    • The date on which the company was appointed or transferred into the merger
    • Shares are issued and distributed.
    • Assets, liabilities, obligations, workers, and employees are all transferred.
  • Obtaining consent from the company’s Board of Directors: In India, the merger must be approved by all of the company’s concerned directors. The company must pass a resolution authorizing a director, chief executive officer, or other officer to file a complaint with the National Company Law Tribunal (NCLT).
  • Obtaining stock exchange permission for listed companies: If a listed firm is one of the parties in a merger in India, the  draft must be filed with the stock exchanges it is registered with.
  • Filing an application with the NCLT to organise a meeting of members and creditors: This is an important step in the merger process in India. Companies must submit an application in the form NCLT-1. Form NCLT-2 must be used to file a notice of admission. In addition, an affidavit in Form NCLT-6 must be submitted.
  • Calling a meeting of the company’s members and creditors: Companies in India undergoing a merger must call a meeting of all creditors and members to approve the merger scheme, as directed by the NCLT.
  • Regional Director and Official Liquidator approval: Companies must obtain approval for the scheme from the Regional Director, Official Liquidator, Reserve Bank of India, Competition Commission of India, and other relevant agencies.
  • Submitting a final merger petition to the NCLT in India: To complete the merger plan, the firms must submit Form CAA-5 to the NCLT.
  • NCLT order of permission: In India, the companies must seek an order of permission from the NCLT as the final step in the merger process. The Registrar of Companies (ROC) must be notified using Form INC-28.

If the NCLT does not issue an order, the companies may file an appeal with the National Company Law Appellate Tribunal for the merger process in India.

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