Ritika Pundir (CA) (154 Points)
04 July 2010A Company X, its managing director and another director hold respectively 1/3rd number of shares in another company Y, and thus together they hold all the shares of company Y.
Is Y a subsidiary of Company X..?
Kindly guide with the relevant provision.
Siddarth R Sunder Ram
(Finance Professional)
(230 Points)
Replied 05 July 2010
No. Company X has separate legal entity different from that of its managing director or its director. In this situation, company X holds only 1/3 i.e 33.33% of company Y's shares.
As per section 4 of the companies act, more than half of the nominal value of company's equity share capital has to be held by another company (in this case X) to be classified as a subsidiary of that company. So Y would normally not be X's subsidiary.
However, if company X has the power to control the composition of the Board of directors of company Y, then Y will become X's subsidiary, since this is also provided for by sec 4.
CAclubindia
