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A ltd, b ltd and z ltd

Dipjyoti Majumdar (CA in service & CS. dipmaj@ rediffmail.com ) (3468 Points)

29 January 2013

Friends

A Ltd holds more than 50% share capital of Z Ltd.

Out of 5 directors of B Ltd, 4 directors of B Ltd are also directors of Z Ltd.

Both A Ltd and B Ltd claim that Z Ltd is their subsidiary. How is it possible.

Regards,

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9 Replies

Sneha (Company Secretary) (1594 Points)
Replied 29 January 2013

According to my perception, Z ltd is subsidiary of only A ltd.

Merely having same directors on Board does not make Z Ltd subsidiary of B Ltd. Company has the status of seperate legal entity. Does B Ltd controls the composition of Board of Directors of Z Ltd ??

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Dipjyoti Majumdar (CA in service & CS. dipmaj@ rediffmail.com ) (3468 Points)
Replied 30 January 2013

Sneha

How do you justify or prove that B Ltd controls the composition of Board of Z Ltd in practice. B Ltd claims so.

Regards,

CA VISHAL RANA,CS,B.Com,AMFI (Chartered Accountant in Whole Time Practice) (4354 Points)
Replied 30 January 2013

Z Ltd. is a Subsidiary of A Ltd. because more than 50% Share capital of Z Ltd held by A Ltd.

Further as said by Sneha B Ltd. has power to Compose the board of Z Ltd...beacuse majority of Directors in B Ltd directors in Z Ltd. Majority Directors mean has power to affect the decision of Board.

Thanks & Regards

CA Vishal Rana

Sneha (Company Secretary) (1594 Points)
Replied 30 January 2013

I can interpret this on the basis of the fact that Company Z Ltd and its directors have seperate identity. Just because they have four common directors doesnot authorize the Company B Ltd (which is a seperate legal entity) to interfere in the decision making or board composition of Z Ltd

Regards

Sneha Binani

Company Secretary

Dipjyoti Majumdar (CA in service & CS. dipmaj@ rediffmail.com ) (3468 Points)
Replied 30 January 2013

Fine. Then, separately, when does a company become a subsidiary of another company by virtue of section 4(1)(a) , ie, whjat are the tests to be examined.

Regards,

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Sneha (Company Secretary) (1594 Points)
Replied 30 January 2013

According to Sec - 4(1)(a) when the Company has the authority to appoint or remove any of the Directors of the other Company. Does B ltd has the power to appoint Mr. ABC in the Board of Z Ltd. And how come B Ltd get that authority ?

Dipjyoti Majumdar (CA in service & CS. dipmaj@ rediffmail.com ) (3468 Points)
Replied 30 January 2013

Thanks Sneha for your clarification. Now I am able to understand what you are looking at. The answer has come to me with logic.

Possibly what you are saying is B Ltd does not have authority to control , appoint/remove directors of Z Ltd in a general meeting and not Board Meeting as it does not have majority holding in Z Ltd.

Regards,

Sneha (Company Secretary) (1594 Points)
Replied 30 January 2013

Here I would like to add if Z Ltd would have taken any loan from B Ltd and the terms of loan gives B Ltd the power to control the composition of Board of Z Ltd. Similarly any other contract which gives B Ltd such authority then B Ltd could have claimed Z Ltd as its subsidiary (even though B Ltd is not a shareholder of Z Ltd)