Consultant
2070 Points
Joined May 2016
FACTORS FOR DETERMINING ‘HOLDING COMPANY’ & ‘SUBSIDIARY COMPANY’:
Fundamentally, there are two mutually exclusive factors to be considered in determining whether one company is a subsidiary of another.
(i) The first is control over composition of the Board of Directors of the company by the other company. This factor remains unchanged under the CA, 2013. Thus, where the company has the right which can be exercised by it at its discretion to appoint or remove all or a majority of the directors of the other company.
(ii) The second factor is where a company exercises or controls more than one-half of the ‘total share capital’ either on its own or together with one or more of its subsidiary companies.
Under the Companies Act, 1956 the exercise or control was with respect to more than 50% in the nominal value its equity share capital. Thus, in determining ‘more than 50%’control through votes, only the paid up equity capital was relevant for determining whether one company was a subsidiary of another.
MEANING OF ‘TOTAL SHARE CAPITAL’:
Under the CA, 2013 however, what is relevant is ‘exercise’ or ‘control’ of more than one-half of the ‘total share capital’ which is defined under the rules as: Aggregate of (i) Paid up equity share capital and (ii) Paid up convertible preference shares capital. Therefore, where a company has issued and paid up convertible preference shares, such preference share capital amount will have to be aggregated with paid up equity share capital for determining whether the company would be a subsidiary of another company.
Moreover a company shall be deemed to be a subsidiary company of the holding company if one or more of the subsidiary companies controls such company. In that case Such company will be deemed as subsidiary of Holding company. Example A holds 60% share of B, B holds 60 % shares of C. So, in this case C will also be considered as subsidiary of A.
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