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Subsidiary company

Shab M (CS) (24 Points)

28 November 2018

Can we say B is subsidiary of A if,:

1. Company A's MD , his son and his wife are shareholder in B (holding 74% altogether)

2. Company B has 3 directors, and one director is A's MD's wife and one is his son. (MD's wife is common in A and B)

Can we say that A has control over the Board of B?? Although A is not directly holding shares in B and only 1 director (MD's wife) is common director in A and B.

Kindly suggest.

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2 Replies

Vatsla Alagh (1545 Points)
Replied 29 November 2018

If company A controls the composition of company B, then B is subsidiary of A

Shrikant (Associate) (350 Points)
Replied 03 December 2018

There is no holding-subsidiary relation between company A and B as it does not qualifies the definition of subsidiary given under the Section 2 (87) of the Companies Act, 2013 reproduced below for your reference:

87) "subsidiary company" or "subsidiary

" in relation to any other company (that is to say the holding company), means a company in which the holding company—

(i) controls the composition of the Board of Directors; or

(ii) exercises or controls more than one-half of the total voting power either at its own or together with one or more of its subsidiary companies:

Provided that such class or classes of holding companies as may be prescribed shall not have layers of subsidiaries beyond such numbers as may be prescribed.

Explanation.—For the purposes of this clause,—

(a) a company shall be deemed to be a subsidiary company of the holding company even if the control referred to in sub-clause (i) or sub-clause (ii) is of another subsidiary company of the holding company;

(b) the composition of a company's Board of Directors shall be deemed to be controlled by another company if that other company by exercise of some power exercisable by it at its discretion can appoint or remove all or a majority of the directors;

(d) "layer" in relation to a holding company means its subsidiary or subsidiaries;

Here, B will become associate company of A under the defination of associate company given under the Section 2 (6) of the Companies Act, 2013 reproduced below for your reference:

"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.

Explanation.—For the purpose of this clause,—

(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;

(b) the expression "joint venture" means a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement;