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pvt. co. subsi of a public co.

karn (trainee) (172 Points)

02 December 2009

Dear All,

kindly help me in the followin matters:

1. What is the situation when we call a subsi company as a wholly owned subsi.???

2. The subsi. holding relation is due to the investment made by the public company into the shares of a private company and the share holding is more than 50%, in such a case whether conversion of this private company discussed here is necessary to a public company.???

3. If no, what are the other compliances that shall be done, i.e whetheralteration in memorandum, inc in directors from 2-3 etc.. such shall be done???

4. What are the necessary compliances or other issues to be kept in mind while doing this.???

5. What are the applicable provisions pursuant to companies act 1956 which shall be followed by such a pvt. co..???

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7 Replies

Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 02 December 2009

Dear Karn,

Suppose there are 100 equity shares in company A. Now if 99 shares of Company A are hold by company B and 1 share is hold by someone else to comply with Minimum 2 members requirement. This company A is WOS of company B.
No conversion of such private company in to a public company is not necessary at all.
Status of subsidiary company will remain the same. However some provisions which are applicable on a public company also become applicable for such private company.
No special issues to be kept in mind.
Some provisions connected with a public company also required to be followed by such private company like appointment of managerial personnel and remuneration limits etc.

Take care of this clause in the section “Public company and a private company which is subsidiary of a public company”. In this situation whole section become applicable to such private company because of its subsidiary status.

Best Regards

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Ashish (CA) (166 Points)
Replied 02 December 2009

1. When Holding company holds all voting power / Ownership right in any other company then such investing co is called as Holding Co and the other one is called as subsi company as a wholly owned subsi of such Holding co.

2. There is no need to convert Pvt Subi co to Public merely because it's Holding is Public co.

3. There is no major impact Pvt subi co.'s status. It has to follow some addition provision than any other Pvt co. It is deemed Public co. But in case of Directors it can maintain Min 2.

4. While converting Pvt to public care must be taken in case where provisions which are not applicable to Pvt but are applicable to Public co. Such as: No. of Directors, Directors Remuneration, etc

karn (trainee) (172 Points)
Replied 02 December 2009

thank you Mr. Ankur & Mr. Ashish....but still the dilemma of what are the provisions that ought to be taken care of after such investment (of more than 50%) into the equity shares of a pvt co. by a public co. is being done, so in such a case it becomes a subsi of that public co.. hence if any disclosure is to be made to ROC in this regard also is there any other legal compliance that should take place immediate or later, as far as my little knowledge is concerned i will say that the co. (pvt.) will now onwards (after the day of investment) shall pay heed on:

1.remuneration to its directors.

2.Disclosures to be given by directors(interest).

3.May be increase in the min. no of members for quorum.?? i m not sure

4.rotational retirement of directors.??? Again confused.

and any other if comes to ur mind....

i jus want to confirm that what treatment will be done in such cases.

plz help .

Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 02 December 2009

No change required for quorum, minimum number of members or minimum number of director u/s 252.

However concept of rotational director is applicable. Section 299 disclosure of interest is applicable to all companies.

Other applicable sections are section-268, 269, 316.

Best Regards

karn (trainee) (172 Points)
Replied 02 December 2009

Thank You Mr. Ankur Garg for helping. This is surely a convincing reply and also explains me certain issues.

Regards..

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Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 02 December 2009

Kindly appreciate any section of companies act, 1956 which contain this highlighted clause “Public company and a private company which is subsidiary of a public company” automatically becomes to the private company which is subsidiary of a public company.

If this clause present then whole section become applicable to such private company because of its subsidiary status.