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Subsidiary and Holding Company(Help Needed)

Arka Bose (None) (313 Points)

19 September 2010

Suppose A Ltd and B Ltd are two companies.Now if both of them acquires more than 51% shares of each other,then who will be the holding company and who will be the subsidiary company?

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4 Replies

CA JAY SHAH (Practicing Chartered Accountant ) (137 Points)
Replied 19 September 2010

hey it is not possible.

say first A lyd. buys the 51% share of B ltd, so B ltd will become Subsidiary of A ltd,

and subsidiary co. can't buy share of its holding co. i.e now B ltd can't buy share of A ltd.

Rahul R Pujara (Practicing CA) (26 Points)
Replied 19 September 2010

What Jay has commented is partly right. We have to determine the relationship of Holding and subsidiary on the basis of date of acquisition of shares. If A Ltd. acquired shares in B Ltd. first, then A ltd. will be the Holding Co. And B Ltd. will be the subsidiary but after such a relationship is established A ltd. will prevent B ltd. from acquiring shares upto 51% in A ltd.. Though, B Ltd. can acquire shares in A Ltd., since A ltd. is the Holding Co., it will restrict and exercise influence on The Board of Directors of B Ltd. that B Ltd. can never acquire so much shares in A Ltd., in practice. So, with this we will be clear that if B Ltd. acquires also, it will be able to acquire only upto 10% or 20% of the shares of A Ltd..

Manmohan ACA, CS (Chartered Accountant ) (14243 Points)
Replied 20 September 2010

Originally posted by : JAY SHAH
	hey it is not possible. say first A lyd. buys the 51% share of B ltd, so B ltd will become Subsidiary of A ltd, and subsidiary co. can't buy share of its holding co. i.e now B ltd can't buy share of A ltd.

agree

Arvind Khemka (practicing CA) (210 Points)
Replied 20 September 2010

As per section 372, subsy company cannot make invesments in holding co...but it can hold less than 50 % if the shares were acquired prior to holding-subsy relationship and thus concept of cross holding comes into picture