Corporate Compliance Insight: The “1 Share” in a Wholly Owned Subsidiary — Legal & Filing Perspective

One of the most frequently discussed nuances in corporate law practice revolves around a seemingly simple yet legally significant question:

When a Wholly Owned Subsidiary (WOS) of a foreign company issues one share to a nominee just to meet the minimum shareholder requirement under Section 3(1)(b) of the Companies Act, 2013 — how should this be treated, both legally and in filings such as Form PAS-6?

Let’s unpack this systematically.

1. Legal Background — Why the “1 Share” Exists

Under Section 3(1)(b) of the Companies Act, 2013, a private limited company must have a minimum of two members.
When a foreign company incorporates a wholly owned subsidiary (WOS) in India, it naturally intends to hold 100% of the shareholding. However, to meet the statutory requirement of two shareholders, the common practice is:

• The foreign parent company holds all shares except one, and

• One share is allotted to a nominee shareholder, usually an individual such as a director or senior employee.

This arrangement allows compliance with Indian company law while maintaining the substantive control and beneficial ownership with the foreign holding entity.

2. Legal Ownership vs. Beneficial Ownership

Even though the nominee shareholder’s name appears in the Register of Members, the beneficial ownership remains with the foreign holding company.

The nominee merely holds the share “in trust” for the foreign parent and is not the beneficial owner in substance.

This is supported by:

• Section 89 of the Companies Act, 2013 – which requires a declaration of beneficial interest in shares.

• The nominee (registered owner) must file Form MGT-4, declaring that he/she holds the share on behalf of the foreign company.

• The foreign holding company (beneficial owner) must file Form MGT-5, declaring that it is the beneficial owner of the said share.

• The Indian subsidiary company must then file Form MGT-6 with the Registrar of Companies (ROC) to record the beneficial ownership declarations.

Thus, even though the “face” of ownership (nominee) and the “substance” of ownership (foreign parent) differ, the law ensures that the beneficial ownership remains transparent through these disclosures.

3. Accounting & Disclosure Treatment

From a financial reporting standpoint:

• The entire share capital of the Indian WOS is treated as owned by the foreign parent, even though one share may be registered in the name of a nominee.

• This ensures that the control and ownership of the subsidiary are accurately reflected in the parent company’s consolidated financial statements.

4. Form PAS-6 — The Crucial Compliance Point

Form PAS-6 is a half-yearly return filed by unlisted public companies and private companies that have issued shares in demat form under Rule 9A of the Companies (Prospectus and Allotment of Securities) Rules, 2014.

The form requires disclosure of:

• Category of shareholders (Promoters, Directors, KMPs, Public, etc.)

• Number of shares held by each shareholder

• Details of dematerialized shares and reconciliation

The key compliance question arises:

How should the 1 share held in the name of the nominee be shown in PAS-6?

Correct Treatment:

• The nominee’s name may appear in the Register of Members, but since the beneficial ownership lies with the foreign holding company,
  this share must be shown under the category “Promoter / Holding Company.”

• It should not be reported under KMP / Director shareholding, even though the nominee may hold that position.

In Short:

“Name may differ, but ownership doesn’t.”

This classification ensures that the true ownership structure of the company is accurately disclosed, avoiding any misleading impression that a director or KMP personally owns shares in the subsidiary.

5. Practical Compliance Steps

6. Why Accuracy Here Matters

This seemingly minor compliance detail can have significant implications:

• Misreporting may trigger queries from regulators (ROC / SEBI) or non-alignment with foreign parent filings.

• Inconsistent ownership data may impact foreign direct investment (FDI) records, beneficial ownership compliance, and audit reports.

• For listed groups or large foreign subsidiaries, alignment between MGT, PAS, and FLA return disclosuresbecomes essential to maintain transparency across filings.

7. Key Takeaways for Professionals

1. Nominee holding is purely statutory — beneficial ownership always rests with the parent.

2. Disclosure alignment between MGT-6 and PAS-6 is critical.

3. Never classify the nominee share as held by a KMP in statutory filings.

4. Maintain documentary evidence — including declarations and board resolutions — to demonstrate that the share is held “in trust.”

5. Cross-verification with FDI and FLA data ensures group-level accuracy.

Conclusion

In corporate compliance, precision in small details defines governance quality.
That “one share” in a Wholly Owned Subsidiary — though numerically insignificant — symbolically represents total transparency and trust in ownership reporting.

As professionals, our duty lies in ensuring that the form reflects the substance, even when the “name may differ, the ownership doesn’t.”

A small share, but a big compliance insight

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