Common directors in case of associate companies in India

Co Act 2013 921 views 3 replies

Achyutha Guptha

23 Points Joined July 2023

Hi Experts,

I have been wondering whether a company become associate company if it has common directors or common shareholders (irrespective of amount of shareholding in both entities).

Because as per Section 2(6) of the Companies Act, 2013, ‘associate company’, in relation to another company, means a company in which that other company has a significant influence, but which is not a subsidiary company of the company having such influence and includes a joint venture company.

(a) the expression “significant influence” means control of at least twenty per cent. of total voting power, or control of or participation in business decisions under an agreement;

And as per section 2(27), “control” shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner.

By referring both can we deduce that a company having common executive directors as associate companies?

Replies (3)

sabyasachi mukherjee

27922 Points Joined May 2017

Common directors which one.

Achyutha Guptha

23 Points Joined July 2023

Originally posted by : sabyasachi mukherjee
	Common directors which one.

What I meant here is companies having common directors in both of them as executive directors.

Pankaj Devnani

CS Student

107 Points Joined December 2020

According to Section 2(6) of the Companies Act, 2013, an "associate company" is one in which another company holds significant influence. This influence is defined as either controlling at least 25% of the total voting power or participating in business decisions under an agreement.

The term "control," as per Section 2(27), encompasses the right to appoint a majority of directors or to influence management and policy decisions. This influence can be exercised directly or indirectly, through shareholding, management rights, shareholders agreements, voting agreements, or any other means.

Now, considering the scenario of common executive directors, the mere presence of shared directors between 2 companies doesn't automatically classify them as associate companies. The crucial factor lies in whether there are specific arrangements or agreements that confer a level of control or significant influence.

If the shared executive directors are part of arrangements granting one company the authority to appoint a majority of directors or influence management decisions, directly or indirectly, then the two companies may indeed be considered associate companies, as outlined in the aforementioned sections of the Companies Act, 2013. The determination depends upon the existence and nature of such control mechanisms, rather than the mere fact of common executive directors.