Holding & Subsidiary Companies

Before discussing about the Holding and Subsidiary Companies, let us first discuss the classification of the Companies on the basis of Control under the Companies Act, 2013.

On the basis of Control, Companies can be divided into three types. They are:

(a) Holding Companies

(b) Subsidiary Companies

(c) Associate Companies;

As far as associate Companies are concerned we have already discussed it in our earlier article. So let us now discuss about other two types i.e. Holding and Subsidiary Companies.

Holding company

As per Section 2 (46) of the Companies Act, 2013, holding company, in relation to one or more other companies, means a company of which such companies are subsidiary companies.

Subsidiary company

Section 2 (87) of the Companies Act, 2013 provides that subsidiary company or subsidiary, in relation to any other company (that is to say the holding company), means a company in which the holding company—

 (i) controls the composition of the Board of Directors; or

(ii) exercises or controls more than one-half of the total share capital either at its own or together with one or more of its subsidiary companies:

Provided that such class or classes of holding companies, shall not have layers of subsidiaries beyond the prescribed limit. (Proviso is yet to be notified)

For the above purpose,—

(a) a company shall be deemed to be a subsidiary company of the holding company even if the control referred to in sub-clause (i) or sub-clause (ii) is of another subsidiary company of the holding company;

(b) the composition of a company’s Board of Directors shall be deemed to be controlled by another company if that other company by exercise of some power exercisable by it at its discretion can appoint or remove all or a majority of the directors;

(c) the expression “company” includes any body corporate;

Company includes Body corporate & “body corporate” or “corporation” includes a company incorporated outside India. Thus an Indian Company can be a holding/subsidiary of the Company incorporated outside India.

 (d) “layer” in relation to a holding company means its subsidiary or subsidiaries.

Point (a) above explained:

For example A is having control over B as referred in sub-clauses above, and A is also the subsidiary of C then B shall be deemed to be subsidiary of C despite the fact that C has no direct control over B.

Point (c) above explained:

Company includes Body corporate & “body corporate” or “corporation” includes a company incorporated outside India. Thus an Indian Company can be a holding/subsidiary of the Company incorporated outside India.

Further, It has been clarified vide MCA Circular No. 27/2013 dated 27th December 2013 that the shares held by a company or power exercisable by it in another company in a “fiduciary capacity” shall not be counted for the purpose of determining the holding-subsidiary relationship.

Points to be considered in respect of Holding and Subsidiary Companies:

  1. Any Company having more than one subsidiary have to prepare consolidated Financial Statement apart from Standalone.
  2. Subsidiary company cannot hold shares in its holding company [Section 19]. However there are certain exceptions to it as explained in section itself. (We will discuss the same in other article)
  3. A subsidiary of any public company shall be deemed to be a public company.

 

For Detailed Analysis Please watch my YouTube Video on this Topic at:

https://youtu.be/PL5d7EZmOso

 

 

Disclaimer: The entire content of this document have been prepared as per the information existing at the time of the preparation. The blog is based on author’s personal views and the author does not take any responsibility of the same.

 

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