What is Deemed Public Company – as per companies act 1956 & 2013
What is Deemed Public Company: This article will try to explain what is deemed company. It will also explain about deemed company provision. It will cover amendment under revised Companies Act. We will also see its impact on Foreign Direct Investment (FDI). now check more details about “Deemed Public Company” from below…..
What is Deemed Public Company
What is deemed company under Companies Act 1956
- Deemed company refers to the private company which is a subsidiary of the public company.
- Deemed companies are treated at par with the public companies.
- These companies operate as private companies. However ,they are subject to legal and other compliances like a public company.
- The Act considers a private subsidiary of the foreign body corporate to be deemed public company.
- The only condition is that, such foreign body corporate would have been a public company in India, if it was incorporated here.
What is Deemed company under Companies Act 2013
- Deemed company would mean a company which is subsidiary of a public company
- It would make no difference even if such subsidiary continues to be a private company by its articles.
Changed position due to Amendment in Act
Companies Act 1956
- The Act exempts private subsidiary of the foreign body corporate from being deemed public company.
- Such exemption holds true only if such foreign body corporate would have been private company, if registered in India.
- Where the foreign body corporate holds the entire share capital of the subsidiary, then the subsidiary would be private company.
- This saved many foreign companies from becoming deemed public company.
- So foreign body corporate would open subsidiaries in India easily. This attracted major foreign investment.
- The major uptrend was seen because of low or no cost of legal compliance on subsidiaries.
Companies Act 2013
- However Companies Act 2013 amended the position of deemed company.
- Accordingly ,even if a subsidiary of public company chooses to be a private company for internal matters, it will be treated as deemed public company.
- Because of this, most of the foreign companies won’t have any privileges of private companies.
- Even where the subsidiary decides to be a private company by its articles, it would be considered deemed company.
Impact of amendments in Companies Act
- Foreign companies are left with limited choice.
- Hence, they would choose not to open subsidiaries in India, as they will be deemed public company anyways.
- Opening the subsidiaries will lead to huge compliance and regulatory burden on these Foreign Body Corporates.
- This has totally defeated the purpose of corporate governance.
Revised FDI norms (Foreign direct Investment) were expected to bring huge foreign investment. This additional foreign investment would facilitate building world class infrastructure. However amendment in under Companies Act, has definitely let down the foreign investors.