Layers of subsidiary
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02-Sep-2018 11:59 PM / View :
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Please explain in detail everything about the ammended in relation to layers of subsidiary companies. (Including that of investment company, wholly own subsidiary company, foreign company and its subsidiary) Read more on : subsidiary layers
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An answer to your query -
As per Sec 2(87) read with Rule (d) of Companies Act 2013
"Layer" in relation to a holding company means its subsidiary or subsidiaries;
The Rules provide that a company can no longer have more than 2 (two) layers of subsidiaries. Under the Act, a 'subsidiary' of a company (i.e. the holding company) has been defined as a company in which the holding company, on its own or with its other subsidiaries: (i) can appoint or remove the majority of directors; or (ii) exercises, controls or owns more than half of the share capital.
Further, any company, whose board composition or share capital is controlled (as provided above) by a subsidiary of a holding company, is also considered to be a subsidiary of the holding company.
The following classes of companies are specifically exempted from the restriction on the number of layers:
Banking company, non-banking financial company, insurance company, and government company.
The rules doesn't restrict Indian companies from acquiring a foreign company with more than 2 (two) layers of subsidiaries if such layers of subsidiaries exist in accordance with the laws of the jurisdiction of the foreign company.
Hence, the Rules can be read to say that a company incorporated outside India cannot have more than 2 (two) layers of subsidiaries in India.
A layer consisting of a wholly owned subsidiary is not taken into account for the purpose of calculating the number of permissible layers.
As per Sec 186(1) without prejudice to the provisions contained in this Act, a company shall unless otherwise prescribed, make an investment through not more than two layers of investment companies:
Provided that the provisions of this sub-section shall not affect,—
(i) a company from acquiring any other company incorporated in a country outside India if such other company has investment subsidiaries beyond two layers as per the laws of such country;
(ii) a subsidiary company from having any investment subsidiary for the purposes of meeting the requirements under any law or under any rule or regulation framed under any law for the time being in force.