In India’s corporate sector, holding and subsidiary companies form the backbone of many business groups. Understanding their relationship is essential for proper compliance. A holding company in India is an entity that controls one or more other companies by owning a majority of their voting rights or a majority of the board composition, while a subsidiary is a company under its control. These structures are governed by the Companies Act, 2013, along with related rules and applicable SEBI guidelines for listed entities. Subsidiary companies follow the direction of the holding company for significant decisions. They handle their own statutory filings, board governance, and financial reporting, while benefiting from group support, shared resources, and the credibility of their parent company.
This blog explores the legal framework, formation, governance, rights, and obligations of holding and subsidiary companies in India.
What is a Holding Company?
A holding company is an entity that owns more than 50% of the voting rights in another company (the subsidiary company). The holding company controls the composition of the subsidiary’s board of directors or exercises control over the subsidiary’s management or policy decisions.
According to Section 2(46) of the Companies Act, 2013:
“A holding company, in relation to one or more other companies, means a company of which such companies are subsidiaries.”
What is a Subsidiary Company?
A subsidiary company is a company in which the holding company holds a majority of the share capital or voting rights, or otherwise exercises control over the company.
- According to Section 2(87) of the Companies Act, 2013:
“A company shall be deemed to be a subsidiary of another if that other company—
controls the composition of the board of directors; or - exercises or controls more than one-half of the total share capital either at its own or together with one or more of its subsidiaries.”
Subsidiary companies can be of two types:
- Wholly Owned Subsidiary (WOS): When the holding company owns 100% of its shares.
- Partially Owned Subsidiary: When the holding company owns more than 50% but less than 100% shares.
Legal Framework Governing Holding and Subsidiary Companies
In India, holding and subsidiary companies are governed by:
- Companies Act, 2013
- Companies (Accounts) Rules, 2014
- Securities and Exchange Board of India (SEBI) Regulations
- For listed companies, SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 impose additional disclosure and compliance requirements relating to subsidiaries.
Holding Company Vs Subsidiary Company
| Criteria | Holding Company | Subsidiary Company |
| Definition | A holding company is an entity that owns a controlling interest (usually more than 50% of voting shares) in one or more other companies, thereby exercising control over their policies and management. | A subsidiary company is an entity that a holding company controls through majority shareholding or effective control of the board of directors. It functions as a separate legal entity but is governed by the holding company. |
| Legal Status | A holding company is a distinct legal entity with separate rights, liabilities, and obligations from its subsidiaries.
It can sue and be sued in its name. |
Subsidiary Company is a separate legal entity from its holding company
The subsidiary’s legal existence is independent of the holding company. |
| Formation | Incorporated under the Companies Act, 2013, like any other company, either as a private or public company.
A company becomes a holding company once it acquires shares, giving it control over other companies. |
A Subsidiary Company is formed by the holding company either by subscribing to shares at incorporation or by acquiring a majority stake in an existing company. Subsidiary companies can be domestic or foreign entities, subject to applicable regulations. |
| Control Mechanism | The holding company controls the subsidiary company by appointing directors to the subsidiary’s board, influencing decision-making and corporate policy. It | A subsidiary company operates under the control of the holding company, but retains its own board and management. While it has operational independence, major decisions are often influenced or directed by the holding company. |
| Management | The holding company’s board of directors may also sit on the subsidiary’s board to oversee and control subsidiary operations. | The board of directors is responsible for the company’s day-to-day management, but follows strategic directions from the holding company. |
| Ownership Requirements | The company must hold more than 50% of the subsidiary’s voting rights or otherwise control the majority of board seats to qualify as a holding company under Indian law. | The subsidiary is controlled by the holding company, which holds majority voting rights, typically over 50%.
Minority shareholders may also exist, but they have limited control in the company. |
| Liability | Liability of the holding company is limited to its share capital or investment in the subsidiary company. It is not liable for the debts of the subsidiary company beyond its investment in the subsidiary. | Liability is limited to its assets. The holding company is generally not liable for a subsidiary’s obligations unless specific guarantees are provided. |
| Rights | The Company can
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The Company:
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| Obligations | The Company:
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The Company:
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| Financial Reporting | Prepares consolidated financial statements that combine the financial results of the holding company and its subsidiaries to present a unified financial position. | Prepares standalone financial statements that are submitted independently, but the holding company consolidates its results. |
| Regulatory Compliance | The holding company must ensure compliance with the provisions of the Companies Act, 2013, relating to subsidiaries and related-party transactions. Adhere to SEBI regulations if listed. Make sure that you comply with the provisions of the Foreign Exchange Management Act (FEMA) if the company deals with foreign subsidiaries. | The subsidiary company must comply with all applicable laws and regulations, including the Companies Act, tax laws, and foreign exchange regulations (if applicable).
The subsidiary company operates under regulatory oversight as a separate company. |
| Financial Benefits |
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| Examples | Tata Sons Limited (holding company) owns Tata Motors, Tata Steel, etc.
Reliance Industries Limited owns subsidiaries like Reliance Jio. |
Tata Motors Limited (a subsidiary of Tata Sons) operates as an independent company in the automobile sector. |
Conclusion
The interplay between holding and subsidiary companies in India creates a powerful dynamic for growth, combining strategic control with operational independence. This dual structure allows holding companies to steer overall direction and financial consolidation, while subsidiaries focus on specialized functions and market agility. The Companies Act, 2013, primarily governs companies, while SEBI guidelines also apply. Understanding and effectively managing this relationship is crucial for companies seeking to establish resilient, scalable, and well-governed business units.
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