Layers Of Corporate Subsidiaries Capped To Two To Check Money Laundering, Protect Investors

Companies can now have only two layers of subsidiaries with the government bringing in new rules effective from September 20 putting restriction on the number of layers for corporates to check money laundering and protect investors. No company, other than banking, non-banking financial company or an insurance firm, can have more than two layers of subsidiaries. The Ministry of Corporate Affairs brought in the new rules “in view of reports of misuse of multiple layers of companies, where companies create shell companies for diversion of funds or money laundering…”. However, the rule will apply prospectively and the existing holding companies do not need to reduce their existing layers of subsidiaries. They, however, cannot add more layers without filing a return to the registrar giving details of layers of subsidiaries.

If any company contravenes any provision of the rules, the company and every officer of the company who is in default would be liable to a fine of Rs 10,000. If the contravention continues, it may extend to Rs 1,000 every day, besides the Rs 10,000 fine.

October 8th, 2017