Holding 100% pref shares

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nisha (Querist)
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29 June 2014 hi experts, i want to know what is the relationship between two companies will be called if one is holding 100% prefrence shares of another .

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Guest (Expert)

29 June 2014 under companies act 13 na

nisha

nisha (Querist)
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29 June 2014 ya according to companies act only plz reply

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Asha Kanta Sharma online

Asha Kanta Sharma

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28 July 2024 Under the Companies Act, 2013 in India, the relationship between two companies where one company holds 100% of the preference shares of another is primarily characterized as follows:

### **1. Holding and Subsidiary Relationship:**

- **Holding Company:**
- A company that holds 100% of the preference shares of another company is termed as a **"Holding Company"** in relation to the other company.

- **Subsidiary Company:**
- The company whose preference shares are held 100% by another company is termed as a **"Subsidiary Company"** of the holding company.

### **Relevant Sections of the Companies Act, 2013:**

1. **Section 2(46) - Definition of Holding Company:**
- According to Section 2(46) of the Companies Act, 2013, a **"holding company"** in relation to another company (referred to as the **"subsidiary"**) means a company which:
- Controls the composition of the Board of Directors of the other company, or
- Holds more than half of the total voting power of the other company, or
- Holds more than half of the total share capital of the other company.

2. **Section 2(87) - Definition of Subsidiary Company:**
- As per Section 2(87), a **"subsidiary company"** means a company in which the holding company:
- Controls the composition of the Board of Directors, or
- Holds more than half of the total voting power, or
- Holds more than half of the share capital.

### **Preference Shares Specifics:**

- **Voting Rights:**
- Preference shares generally do not carry voting rights unless specifically provided for in the terms of issue. However, if the holding company holds 100% of the preference shares, it implies full control over the financial benefits associated with those shares (such as dividend rights) and potentially influence over the subsidiary company.

- **Financial Control:**
- Holding 100% of the preference shares could indicate financial control, especially if the preference shares are convertible into equity or have special rights that give the holding company significant influence over the subsidiary’s operations.

### **Summary:**

When one company holds 100% of the preference shares of another company, the former is considered the **"Holding Company"** and the latter is the **"Subsidiary Company"**. This relationship is defined based on control over the subsidiary's board or significant ownership of its share capital, although preference shares alone do not necessarily provide voting rights unless specified otherwise.