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ARTICLE · 03 NOVEMBER 2017

MCA Imposes Restriction On Layers Of Subsidiaries

S.S. Rana & Co.
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The Rules apply prospectively to the existing companies which have more than 2 layers of subsidiaries as on September 20, 2017.

IndiaCorporate/Commercial Law
S.S. Rana & Co. Advocates
S.S. Rana & Co. Advocates
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Introduction

The Ministry of Corporate Affairs (hereinafter referred to as the "MCA"), vide notification No. G.S.R 1176(E) dated September 20, 2017, has notified the Companies (Restriction on number of layers) Rules, 2017 (hereinafter referred to as the "Rules"). The Rules state that no company, other than which are exempted, shall have more than two layers of subsidiaries. The restriction on companies to have more than two layers of subsidiaries is mandated to primarily check the misuse of multiple layers of subsidiaries and curb diversion/syphoning of funds.

Computation of layers

In computing the number of layers, one layer which consists of one or more wholly-owned subsidiary or subsidiaries shall not be taken into account. It means that if a holding company has a wholly owned subsidiary, then such subsidiary can in turn have two step-down subsidiaries or layers of subsidiaries. However, subsidiaries of the wholly owned subsidiary cannot have any subsidiary.

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