Why a foreign wholly owned subsidiary must have a second shareholder, why the parent's authorised signatory cannot be the nominee, and the mandatory post-incorporation declarations.
Under Section 3(1)(b) of the Companies Act, 2013, a private limited company in India must have at least two shareholders (members). For a foreign parent establishing a "wholly owned" subsidiary (WOS), this creates an apparent contradiction: how can an entity be 100% owned by one parent while meeting the statutory minimum of two members?
The answer is the nominee shareholding structure. The foreign parent holds 99.99% of the equity shares (e.g., 9,999 shares), while 1 single share is issued to a nominee individual to hold in trust for and on behalf of the parent company. Beneficial ownership of 100% of the shares remains fully with the parent.
The most frequent Registrar of Companies (ROC) objection on foreign subsidiary incorporations arises from Rule 13 of the Companies (Incorporation) Rules, 2014.
Where a body corporate subscribes to the Memorandum of Association, it executes the subscriber sheet through an authorised representative named in a board resolution. That authorised representative cannot simultaneously subscribe in an individual capacity as the nominee shareholder.
If Mr. Hans Schmidt signs the subscriber sheet on behalf of Tech GmbH (the parent), he cannot also sign as the individual nominee holding 1 share. Attempting to do so results in an immediate resubmission query from the Ministry of Corporate Affairs (MCA).
Once the company is incorporated and shares are allotted, Section 89 of the Companies Act, 2013 requires three statutory declarations within 30 days:
Failure to file Form MGT-6 within 30 days attracts recurring daily fines for the company and officers in default. Furthermore, any dividend or right attached to the nominee share cannot be lawfully exercised or remitted until Section 89 declarations are registered.
Our secretarial team prepares compliant subscriber documentation, resolves ROC resubmission notices, and files MGT-4/5/6 returns for foreign subsidiaries.
