Companies Act, 2013 read with the Companies (Restriction on Number
of Layers) Rules, 2017 restricts the number of layers of
subsidiaries a company is permitted to have under it.
Companies Act, 2013 (‘Companies Act’) read with the
Companies (Restriction on Number of Layers) Rules, 2017 (‘Layering
Rules’) provides that a company is not allowed to have more
than 2 (two) layers of subsidiaries. This restriction was
introduced to prohibit companies from misusing multiple layers of
subsidiaries, by creating shell companies for diverting funds or
Provisions under the Companies Act and the Companies Rules dealing with restriction on number of layers
Section 2(87) of the Companies Act defines a subsidiary company,
in relation to the holding company, as a company in which the
holding company either (i) controls the composition of the board
of directors; or (ii) exercises or controls more than 50% (fifty
percent) of the total voting power, either on its own or together
with one or more of its subsidiary companies.
Companies exempt from restriction on number of layers
The following classes of companies are exempt from restriction on number of layers:
Exemption for acquiring foreign companies
A company is not restricted from acquiring a company incorporated outside India with subsidiaries beyond 2 (two) layers or as per the local laws of such country.
Exemption for WOS and Analysis
A layer of a company that consists of 1 (one) or more WOS will be
exempt while computing the number of layers of that company.