A holding company in India is defined by the Company Law, which states that this business form is registered with the purpose of controlling other companies. The holding company may own another legal entity through the ownership of shares or by controlling its management. Businessmen interested in starting a company in India under this business form may find a complete definition of the term under Section 2 (46) of the Companies Act 2013. Our team of specialists in company formation in India can provide legal representation of the procedures concerning the registration of this business form.
Main characteristics of the Indian holding companies
The main purpose of an Indian holding company is to perform investments in other companies, which are referred to as operating companies. As a general rule, a holding company may perform the following activities:
• borrowing;
• lending;
• deciding on the investment policies of its operating companies.
It is important to know that in India, just like in other jurisdictions, a holding company is not entitled to complete commercial activities. This type of company is usually incorporated by businessmen due to its tax reduction schemes and asset protection regulations and our agents in India can provide further advice on the main advantages available for the holding company.
One of the assets that can be held by holding companies is represented by Indian trademarks and other intellectual property rights.
Types of holding companies
There are two important categories of holding companies: the operational holding and the financial holding company. These can further be divided into pure, mixed, immediate, and intermediate holdings. The main differences between companies acting as holdings in India are:
- the pure company will be created for the sole purpose of owning stock in its subsidiaries;
- the mixed company will own stocks in one or more subsidiaries, but will also be in charge of managing its own operations;
- the immediate holding company is an entity that holds voting rights or stocks in another subsidiary company of its own;
- the intermediate company which both a holding company and a subsidiary of a corporation.
In most cases, intermediate companies of holdings operate in the publishing sector in India.
These types of entities can also be found in India, where they can hold various types of assets in accordance with the purpose they were established for.
With vast experience in company formation in India, our local consultants can provide the necessary assistance in setting up this type of entity.
Aspects to consider when setting up a holding company in India
The creation of a holding company in India will imply the same steps as for any other types of entities, however, due to its complex structure, there are various aspects to consider. Among these, the fact that it can be set up as a limited liability company, however, other structures can also be employed depending on the operations of the holding.
In certain cases, the holding company will only have control over the subsidiaries which means that it cannot engage in trading or management activities, for example. An advantage of the holding is that it will be exempt from any liability incurred by the subsidiary, which is one of the best reasons for setting up such a structure in India. Apart from these, foreign holding companies can operate here.
The holding company can have control over the management of its subsidiaries or can have ownership rights through the shares held in its subsidiaries.
It should be noted that in most cases, holding companies are large conglomerates in charge of the administration of more or fewer subsidiaries.
If you have any questions about the creation of a holding company, all the answers can be provided by our India company formation officers.
The pure holding company in India
As seen above, there are several types of holding companies that can be set up in India. Among these, the pure holding is one of the most common as it is easy to create and it implies the registration of the selected business form with the purpose of controlling one or more subsidiaries.
In this case, the Indian holding company can own subsidiaries in this country and abroad. It is possible for the local business to acquire existing companies that they can fully or partially control.
The pure holding company can be created with minimum requirements in India, however, foreign investors must pay attention to the local regulations.
If you are wondering how to form a company in India, our local advisors are at your disposal with details and advice on the entire procedure. We can also assist with the incorporation of the selected business form.
The financial holding company
A special type of holding company is the financial one. This is will operate like any other business in the financial sector, and among the types of such businesses that can operate as holdings are banking and insurance institutions.
Those who want to set up such companies under the form of holdings in India must pay attention to various aspects among which the licensing requirements which are quite strict in India.
One of the main requirements in this sense is to add the word “finance’’ to the company’s name.
There are several types of financial holding companies that can be created in India, among which:
- Non-Banking Finance Entities,
- Trust and Societies which can be incorporated as credit cooperatives,
- Nidhi Companies,
- Micro Finance Companies,
- Finance Companies that run under a local license.
The Non-Banking Finance Company must obtain its license from the Indian Reserve Bank and requires a minimum share capital of 20 million rupees. The main advantage of this type of financial company is that it allows foreign participation.
Holding companies can also be set up as local licensed companies where the authorization of the Reserve Bank is also required.
Holding companies in India can also operate as insurance companies with the purpose of providing their services to the local market through various subsidiaries. Just like in any other country in the world, financial companies can expand their operations through subsidiaries in countries all over the world.
If you want to create a financial holding company in India, you can obtain additional information about the registration and licensing requirements from our local consultants.
The subsidiary of a holding company in India
When considering the creation of a holding company in India, local and foreign investors need to know that their venture will have one or more subsidiary companies that will be subordinated to it.
The Indian holding company will:
- control the subsidiary through by being part in the Board of Directors;
- control the subsidiary through the funds it has invested in the subsidiary under the form of capital;
- hold more than half of the shares and share capital in one or more subsidiaries;
- the Board of Directors of the subsidiary will also be controlled by the parent company.
It is also possible for a subsidiary to exercise control over other companies, case in which these companies will automatically become subsidiaries of the parent holding company.
If you need information on starting a company in India under the form of a holding company, you can rely on the expertise of our agents.
The relationship between Indian holding companies and their subsidiaries
Subsidiary companies are subordinate to the holding companies they are owned by, and the control can be exercised through the Board of Directors appointed in the subsidiary. Also, the holding company must own at least 50% of the total shares issued by the subsidiary.
The shares can be owned directly or through other subsidiaries. Another thing to keep in mind is that when a subsidiary held by a holding company has another subsidiary, the latter will automatically become a subsidiary of the holding company.
The structure of Indian holdings is quite complex, however, there are also simple ones and if you are considering starting a company in India, you can obtain detailed information from our local officers.
Register a holding company in India
Businessmen who want to know how to form a company in India under this structure should first choose a legal entity. As a general rule, two types of companies are preferred in this case:
• corporation;
• limited liability company.
Amongst the registration requirements, the investors have to file an application with the local authorities, in which they will offer information on the new company, such as:
• the company’s trading name;
• the name of the company’s representatives;
• the company’s statutory documents.
Another requirement for company formation in India in this sense is to open a corporate bank account for the newly founded business, as the holding company must have a separate account than the ones of the operating companies it controls.
Documents required for registering a holding company in India
The incorporation of a holding in India will usually be completed the same way as for a limited liability company. The following documents need to be filed with the Companies Registrar in India:
- filing for the Digital Signature Certificate (DSC) and for the Director Identification Number (DIN);
- prepare the company’s statutory documents which will consist in the Memorandum and Articles of Association;
- filing them with the Companies House and obtaining the Certificate of Registration;
- filing for tax registration and for social security insurance for employment purposes is also necessary.
These two last steps are completed with the Indian Tax Department.
Returning to the holding company’s statutory documents, it should be noted that the Memorandum and Articles of Association must contain specific provisions with respect to the following:
- information about the assets held in the subsidiary/subsidiaries;
- the name(s) of the subsidiary company(ies);
- the shareholding structure in each subsidiary;
- the share capital and number of shares held by the holding in each subsidiary.
The Articles of Association must also contain the rights of the holding in its subsidiaries.
The preparation of the statutory documents of a company in India could require special attention, case in which our company registration advisors can be of help. We can also assist in altering these documents and filing them for approval with the authorities.
Purposes of holding companies in India
Large enterprises registered as holding companies can decide to branch out through subsidiaries in India, but also other countries in the world for various reasons. Among these, the most common are:
- the separation of various activities of the holdings;
- for tax planning reasons;
- for regulatory reasons.
It is not unusual for holding companies to develop activities in other countries if they have multiple operations in various industries. The holding can hold a major interest in independent companies and through their activities, each business line is clearly defined with the purpose of obtaining higher profits. Also, the shares in some subsidiaries can be listed on the Stock Exchange in India or other countries, case in which the profits of the respective entities must be evidenced separately.
Tax planning is another reason for a holding company to create more subsidiaries. This is mainly the case of foreign holdings who can expand their activities in India through one or more subsidiaries that can act on their own and which, compared to branch offices, will not depend entirely on the parent company.
There are also situations in which in order to operate a company must be created as an Indian holding instead of any other structure. This can be imposed through specific provisions of the Company Law, for example.
Another option is for holding companies to enter joint venture agreements with experts in various fields for the purpose of completing certain activities.
The holding company can bring many benefits for foreign companies deciding to operate in India, however, if you are a sole investor looking to do business in this country, you can rely on our company registration representatives for guidance in incorporating another type of entity.
Taxation of holding companies in India
When registered in India, a holding company will be taxed on its entire income, however, specific tax deductions are available for these entities. The following need to be considered by Indian holding companies in matters of taxation:
- the corporate tax rate for resident holding companies is 30%, while for non-resident ones it is set at 40%;
- the dividends paid by a domestic holding company are subject to a 15% withholding tax;
- dividends received by an Indian holding from a foreign subsidiary in which the former owns at least 26% of the equity shares will be levied at a 15% rate;
- gains on listed shares and securities are taxed at a rate of 10%.
Withholding taxes can be reduced under India’s double taxation agreements.
The main advantages of starting a holding company in India are related to the better control of a larger group of subsidiaries and the ease of transferring ownership rights from the subsidiaries to the parent company. It is also easier to obtain funds for subsidiaries through a holding company.
What are the assets that can be held by holding companies in India?
There are various types of assets that can be held by a holding company in India. Among these, are shares, stock, intellectual property, and even real estate. In the case of the latter, these can also be located outside India and can be held by subsidiaries of the holding company.
When it comes to the shares held by holding companies, it should be noted that there are various types of shares a business can issue. One of the important things to know about the holding company is that in most cases it will not be involved in the activities of the subsidiary or subsidiaries, but it can hold controlling rights, therefore voting shares in it.
Intellectual property is also one of the important assets that can be owned by holding companies in India, particularly since these are related to important tax benefits under various schemes and double tax treaties.
In the case of real estate assets, in most cases, these are offices and commercial buildings located in or outside India.
Holding companies are great tax planning structures, as they can benefit from various advantages.
The creation of a holding company can be subject to special requirements in certain situations, including restrictions to foreign ownership, however, this is allowed in many cases.
Why open a holding company in India
There are various reasons to set up a holding company in India, among which:
- ensuring an effective control over more companies under the permission of the Indian Companies Law of 2013,
- it is easy to transfer assets and ownership under a holding company,
- it is also easier to obtain credits and loans as a subsidiary of a holding or even as a holding when having an established reputation on the market,
- the tax benefits that can arise due to double tax agreements and special schemes related to holding companies.
We remind investors who want to open companies in India that in order to be considered a holding, the business must hold at least 50% of the share capital in the subsidiary. We also invite you to watch a video:
FAQ on holding companies in India
- Is there a special law providing for the registration of holding companies in India?
No, there are no special laws apart from the Company Law of 2013 when it comes to the opening of holding companies in India.
- When is a holding considered a resident company in India?
In order to be considered a domestic company, a holding must have its legal seat in India.
- Can foreign holding companies operate in India?
Yes, foreign companies can set up operations in India through one or more subsidiaries.
- Can an Indian holding company expand in more than one country?
Yes, holding companies registered in India can expand their operations in several countries in which they have one or multiple interests. Moreover, they can set up more subsidiaries in one country.
Other compulsory steps are prescribed by the local law and foreign businessmen may contact our team of specialists in company registration in India for a complete presentation.