Associate company 2(6)

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Geshman (Querist)
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30 November 2015 In the definition of Associate Company whether if the relatives of the directors or directors itself will have shares of more than 20% either by one director or combine with the other directors of the same company or together with the relatives could be considered as the associate company as per 2(6) ?

Ex. : A Pvt Ltd does not have any shares in B Ltd but

i. Director or Directors having 20 % or more holding
ii. Relatives and Directors together having more than 20%
iii. only relatives of the directors have more than 20 %

give the answers for all the 3 cases individually.

Pratik Shah

Pratik Shah (Expert)
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30 November 2015 None of the cases mentioned by you makes B Pvt Ltd as Associate company of A Pvt Ltd, because it is not 'A Pvt Ltd' which has substantial interest, rather Directors and their relatives have.
Definition of Associate company is very clear.

Geshman

Geshman (Querist)
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07 June 2016 In the definition, it is said that the interest in the other company need not be held by the company itself rather the directors of the company can have the holding in other company to consider it as Associate company u/s. 2(6) is my point of view.

Please resolve for me.

Pratik Shah

Pratik Shah (Expert)
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07 June 2016 I am sorry to say but I do not agree to your point. I am not sure from where do you find this sentence in the definition, "the interest in the other company need not be held by the company itself" (as mentioned in your above message)??

Geshman

Geshman (Querist)
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07 June 2016 "significant influence" means control of at least twenty per cent of total share capital, or of business decisions under an agreement;
If it is not under an agreement and the board have similar directors who can change business decisions of the other company Whether it can be an Associate Company ?

Pratik Shah

Pratik Shah (Expert)
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07 June 2016 It is correct that a Company may control another company under an Agreement but it does not mean that the holdings of Director in other company make such company an Associate Company.

I suggest not to interpret the definition in incorrect direction. Share Holdings of Director or their relatives has nothing to do with determination of Associate Company.

In reply to you last question, if it is not under an agreement and board have similar directors who can change decisions of other company, then also it can not be an Associate Company. The main reason is that directors are considered separate than a Company (though they act on behalf of Company). So, if definition is specifically mentioning about a control of another company by A COMPANY under AN AGREEMENT, directors has nothing to do with it, if such companies do not have any Agreement which controls the decisions of another.

I hope this will help.

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Geshman

Geshman (Querist)
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07 June 2016 Got it, Thanks for replying my query

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