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holding and subsidiary

Jyoti Aggarwal (COMPANY SECRETARY) (336 Points)

26 May 2010

Hello frnds,

Pls clear the meaning of Sec 4(1)(a) i.e. control the composition of BOD.

when it is said that a company controls the composition of BOD of other??

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12 Replies

Nitin Grover (CS) (1228 Points)
Replied 26 May 2010

Dear Jyoti

'that other controls the composition of its BOD"

means if the control on work of Board is in other hand.

For e.g. If ABC Manufacturing ltd have 5 Directors and ABC Manufacturing 2 Ltd have the same directors of 1st Company.

In Simple Words we can say that if Directors of Company 1 control the BOD works of Company 2nd / Control of Board Management.

Regards

Rasesh (CS CWA MBA (Fin) B.Com LL.B (Spl)) (6501 Points)
Replied 26 May 2010

Agree with Mr. Nitin.

Even if 50% of the Board of Co. No. 2 was same as that of Co.1, then it can be said that Co.1 controls the Board of Co.2

Jyoti Aggarwal (COMPANY SECRETARY) (336 Points)
Replied 27 May 2010

It means if two companies have same directors then which is holding and which is subsidiary??

e.g. if abc ltd have 2 director mr. x and y and they want to tke become dir in XYZ LTD also then what criteria is required to fulfilled to avoid subsidiary and holding status?

is there any requirement regarding their shareholding in XYZ Ltd?

if both the directors hold 49% shares in XYZ Ltd even then is it said to be subsidiary company only because of directors are same?
As far as I know, I think no.

Pls clarify me.

Rasesh (CS CWA MBA (Fin) B.Com LL.B (Spl)) (6501 Points)
Replied 27 May 2010

If there are common directors in both the companies, then look into the shareholding pattern of the companies.

For yor specific point that both the directors hold 49% .........., the shareholding is immaterial in this case because the composition is controlled by the Directors who are on the Board of one company.

If both the directors jointly hold equal percentage of share capital of both the companies, then look into the balance ownership of these Companies. It is not legally possible that Company A holds 51% in Company B and Company B holds 51% in Company A, since this would be deemed that the Company is holding its own shares. This is not permissible.

Some other entities must be holding shares in the Company A and Company B. Then, look into their Directorships and then the shareholding pattern.

Gargi Ranade (CS) (619 Points)
Replied 27 May 2010

Dear Jyoti

as per my view ,

Composition of a Compny's BOD shall be deemed to be controlled by another Company if, that other company by the exercise of some power exercisable by it at its discretion without the consent or occurence of any other person , can appoint or remove the holders of all or a mejority of the directorships

For e.g. -person can not be appointed thereto without exercise in his favour by that other Company of such a power as aforesaid.

That apersons appointment thereto follows necesaarily from his appointment as director or manager of or to nay other office or employment in that other Company

If directorship of person is nominated by that other Company.

Nitin Grover (CS) (1228 Points)
Replied 27 May 2010

Dear Friends

If Directors of ABC ltd hold shares in XYZ Ltd than it doesn't means its subsi of ABC ltd.

Share holding is on base of individually

Let take example

If i and you are director in a company named as Nitin and Jyoti Associates (CS) Ltd. and we are also having shares 50% of Reliance Power Ltd. than we are RPL is not subsi of N & J Ass. Ltd. because of shareholding is on individually basis.

Regards

Jyoti Aggarwal (COMPANY SECRETARY) (336 Points)
Replied 27 May 2010

Thanks to all..

Pls also clarify me that if Mr. A and B director of XYZ ltd also director in ABC ltd then wat requirements is required to be fulfilled to avoid holding and subsidiary status?

Kumar (Article) (922 Points)
Replied 28 May 2010

Just ensure that none of the company has more than 49% stake in each other and that the total no. of inerested director in any of the company is not more than 50% of the total strength of Board.

Nitin Grover (CS) (1228 Points)
Replied 28 May 2010

not satisfied with kumar reply

ok tell me if their are 5 directors and 3 are interested

than is it subsi or not.. in my views its not.

Regards

Kumar (Article) (922 Points)
Replied 29 May 2010

Nitin

Suppose Company A has 8 directors and Company B has 5 directors.... and out of 5 three directors in Company B 3 directors are directors in company A also, Hence Company A has the power to control the composition of board of compan B, hence co. b is the subsidary of co. A......

Hope m correct and was able to explin it to u......

take care.................!!!!