CS Divesh Goyal
Definition of Holding Company
BARE ACT LANGUAGE
As per Section 2(46) “holding company”, in relation to one or more other companies, means a company of which such companies are subsidiary companies;
Definition of Holding Company
BARE ACT LANGUAGE
As per Section 2(87) “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 as may be prescribed shall not have layers of subsidiaries beyond such numbers as may be prescribed.
Explanation.—For the purposes of this clause,—
(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 anybody corporate;
(d) “layer” in relation to a holding company means its subsidiary or subsidiaries;
COMPANY INCLUDES BODY CORPORATE:
- As per Sec 2(87) Company include a ‘Body Corporate’.
- As per Sec 2(11) body corporate includes a ‘Company incorporate out of India’.
Thus, an Indian company in which more than 50% shares are held by a foreign body corporate will be a ‘Subsidiary Company’.
Similarly, any Indian body corporate can be ‘holding company’ even if that body corporate is not registered as ‘company’ under company Act.
An Indian company can be holding/subsidiary of a foreign body corporate even if it is not registered as a Company.
SOME DECISIONS OF CASES:
- A holding company is not liable for provident dues of a Subsidiary Company.
- Workmen of subsidiary Company are not workmen of holding Company.
- It was held that holding company is not liable for wages of its subsidiary company which was under winding up.
- A holding Company can’t be penalized for violation of foreign exchange provisions of Subsidiary Company.
- Holding and subsidiary companies are independent legal entities, and are to be treated as such. These can’t be treated as one single unit for all purposes.
- Holding and subsidiary are separate and distinct legal entities.
IMPLICATION OF HOLDING/SUBSIDIARY RELATIONSHIP BETWEEN TWO COMPANIES:
If a Company is a Subsidiary of another Company. Following are the implication:-
| Many relaxations to private Company are not available to subsidiary of public Company. | Many relaxations available to a private company are not applicable if that private company is subsidiary of another public Company. Thus, for all practical purpose, the private company is treated as a Public Company. |
| Subsidiary of Public Company is Public Company. | A private company which is subsidiary of a public company is a ‘public company’, even when such subsidiary company continues to be a private company in it Articles. |
| Subsidiary can’t given loans for purchase of shares of holding Company | A subsidiary can’t give loans or financial assistance for purchasing or subscribing to shares of its holding Company. |
| Company can’t buy its shares through subsidiary. | A holding company can’t buy directly or indirectly its own shares through any subsidiary company, including its own subsidiary. |
| Right of holding company to inspect books of account of subsidiary | Inspection of books of account of any subsidiary company shall be done by person authorized by Board of Directors. |
PROVISIONS RELATING TO FINANCIAL STATEMENT FOR HOLDING AND SUBSIDIARY COMPANY:-
| CONSOLIDATED FINANCIAL STATEMENT | |
| Holding Company Financial Statement | Consolidated Financial Statement of holding company is required to disclose prescribe details about subsidiary, associate Companies and Joint ventures. |
| If more than one Subsidiary | If a Company has one or more subsidiaries, associate companies and Joint Ventures, it shall, prepare a consolidated financial statement of the company and of all the subsidiaries, associate companies and joint venture in the same form and manner as that of its own. |
| Separate Financial Statement for Holding Company | This Statement is in addition to the Separate financial statement of the holding company. The consolidate financial statement shall also be paid before the annual general meeting of the holding company along with the laying of its own financial statement. |
| Disclosure in balance Sheet of Holding Company | Balance sheet of holding company shall specifically disclose investments in the subsidiaries. |
| Disclosure in P&L account of Holding Company | Profit and Loss account of Holding company shall disclose-(a) Dividends from subsidiary Companies
(b) Provisions for losses of subsidiary Companies. |
| Every Company having a subsidiary or subsidiaries has to submit consolidated financial statement in addition to its own ‘financial statement’. | |
| Disclosure on Website(such disclosure is required only if the company has its website) | Company is required to:-(a) Place separate audited accounts in respect of each of its subsidiary on its website, if any and
(b) Provide a copy of separate audited financial statements in respect of each of its subsidiary, to any shareholder of the Company |
PROVISIONS APPLICABLE ON HOLDING AND SUBSIDIARY COMPANY:-
| TOPIC | SECTION | PARTICULAR |
| Investment only through two layers | 186(1) | A company shall make investments through not more than two layers of subsidiary investment companies unless provided otherwise. |
| Disclosure in B/S of Subsidiary | Balance sheet of subsidiary Company should disclose shares held by its holding company or its ultimate holding Company, or the ultimate holding Company in aggregate. | |
| Restriction on appointment as Auditors | 226(4) | A person can’t be appointed as auditor, if he, his relative or partner is holding any security or interest in the Company or its subsidiary, or of its holding or associate company or a subsidiary of such holding company. |
| Combined Investigation | 219(a) | If inspectors is appointed for a company under section 213, he can investigate affairs of its subsidiary or holding company also. |
| Loan to Director | 185 | Company can’t give loan to directors of its holding company. |
| Remuneration to MD & WTD | 197(14) | A WTD or MD of a company who is getting commission from the company can get commission or remuneration from its holding or subsidiary company, subject to disclosure by the company in its annual report. |
| Prospectus of Holding Company | – | Prospectus of holding company should contain particular of its subsidiary. |
| Provisions under other laws | – | Ø Holding and subsidiary companies are treated as ‘Related Person’ for valuation purpose under Central Excise Act.Ø Holding and Subsidiary Companies are deemed to act in concert for purposes of takeover regulation of SEBI
Ø Companies act treats holding and subsidiary companies as group Companies. |
SHARE-HOLDING OF HOLDING COMPANY BY SUBSIDIARY COMPANY:
A holding Company can and does hold shares of subsidiary, but a subsidiary can’t hold shares in its holding company. Share allotment made to subsidiary is void.
This restriction applies even if shares are held by nominee of subsidiary Company and not by the subsidiary company itself.
However there are certain cases, subsidiary can be member of its holding Company:-
a) When subsidiary is a legal representative of deceased member of holding Company.
b) When subsidiary is concerned in shares as trustee.
c) Investment held before the Company became subsidiary can continue, but in that case, subsidiary has no voting right in holding Company.
PROVISIONS IN LISTING AGREEMENT IN RESPECT OF SUBSIDIARY COMPANIES:-
- The provisions relating to the compositions of the Board of Directors of the holding Company shall be made applicable to the composition of the Board of Directors of Subsidiary Companies.
- At least one independent Director on the Board of Directors of the subsidiary company.
- The Audit Committee of the Holding company shall also review the financial statements, in the particular the investments made by the subsidiary Company.
- The minutes of the Board meetings of the subsidiary company shall be placed for review of the Board meeting of the holding Company.
- The Board report of the holding Company should state that they have reviewed the affairs of the subsidiary company also.
♣ Whether a Company can be holding Company even if it does not hold 50% equity shares?
The definition of Subsidiary Company mentions ‘total share capital’. Hence, preference capital can’t be ignored. Thus, even if a company has less than 50% equity shares in another company, the other Company can be its holding company, if including preference share capital, the total holding is more than 50%.
(Author – CS Divesh Goyal, ACS is a Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com)
Read Other Articles Written by CS Divesh Goyal
Author Bio
under which law subsidiary company considered as same company / entity to its holding company
A Ltd sold assets to its subsidiary and the payment against the sale has been shown as a receivable in books of A Ltd. Would this transaction be treated as a loan? Evaluate considering the provisions of the Companies Act and ITA along with relevant case laws.
Holding company’s land & building is used by its subsidiary company & rent is not charged for the same. What are the provisions of companies act will apply?Is there any income tax or GST provisions to be noted?
Company A holds 50 % share in Company B. The remaining 50 % shares is company B are held by individuals who together hold entire share capital of Company A.
In this scenario can company B termed as 100% subsidiary of company B ?
I have company who got authorize capital & paid up capital of Rs. 1 Lakh, now i want to expand project & the project value is approximate 80 Cr, i already arrange investor who can invest in my company & he is ready to invest 50Cr, but hurdle is i can not receive fund due to my authoirze/ paidup capital is 1 lakh, how can i move further?
A is a corporation set up under the Act of Parliament.It sets up a company B and get it registered registered under the Companies Act,2013.A holds more than 50 percent share capital of B and also controls its Board.canA be considered as holding corporation and B its subsidiary under the Companies Act,2013 and will the different provisions of Companies Act as applicable to holding subsidiary companies be equally applicable to A and B.?
Hi,
I have a question on parent and subsidiary company. Can subsidiary issue shares to its parent company or not?
my query is that the directors and its relatives of company A holds more than 50% shares in company B, whether company B is subsidiary of A?
My query is – Preference Capital will be taken to calculate Holding Subsidiary relationship.
A 100% subsidiary of a Pvt. Ltd. Co. is closed (Winded up). What are the disclosures to be given by the parent co.?
whether holding & subsidiary company can have common director?
when the holding company is also a lender and 1st charge holder of the subsidiary. can the sale of assets of the subsidiary be adjusted towards the preference capital held by the holding company and then towards the debt ?
For 50℅share capital all kind of preference shares are included or only convertible preference shares are included….????
Needed a clarification w.r.t. to the statement –
At least one independent Director on the Board of Directors of the subsidiary company. –
Is the aforesaid requirement applicable on all the Subsidiary Companies or only on MATERIAL SUBSIDIARY COMPANY of a Holding Company.
can a holding company in India lend to a subsidiary in Singapore?
what are the provision regarding subsdiary company on becoming the partner in llp …..
In a subsidiary company, all rules & regulation on holding company are followed by that subsidiary company expect salary. Can a staff of subsidiary co ask salary as per holding company’s rules.
can subsidiary company give bank gurantee for holding company?
can a holding company have more than one subsidiaries? law doesnt permit more than two layers but my doubt is lik this: A is holding 51% share of B. A is holding 51% of C. A holding 51% share of D. B C and D are unrelated ie, B not holding shares in C nor in D similarly C and D
I need also clarification in this matter. pl do it
Can a holding company holding 99% shareholding of its subsidiary company give a loan to the same subsidiary company?
subsidiary of pvt. Ltd. company transfers all its shares to individuals and also executed the SH-4, are their any other compliance to complete the procedure??
Hello. Can I set up a private limited company as a holding company working on a technological product and set up a section 8 company as its subsidiary ? Both the pot. ltd. and the subsidiary section 8 company are working towards a common goal but in different ways.
Dear sir,
if the financial year of holding company and its subsidiary are different. in such case how can we consolidate its financial statements. Are we need to prepare two books of accounts of the subsidiary.
1st – As per the financial year of subsidiary company and 2nd – As per the financial year of holding company ?????
There are Two Private limited companies .one is profit making and other one is loss making company.but the directors of the company are same.now the profit making company wants to be the holding company of loss making company.both the companies are different entities.can the profit making company can claim the lossess of loss making company.please suggest me
Does a company having 75 % share in a LLP require consolidation,as a LLP is considered as a Body Corporate
If the Directors and shareholders of the two or more companies are same then should it be treated as holding or subsidiary pl explain
Dear Sir,
For the dues by a subsidiary company which is incorporated outside India, is a winding up petition against the holding company incorporated India maintainable? Have you come across any judgments? It would be of great help if you answer my query. Thanks.
Sir , can an Indian company have more than one holding company?
Dear Sir,
If the foreign holding company changes its name, then what are its implications on the Indian Subsidiary. Whether the subsidiary has to amend its AOA to inform the name change of the holding company.
if a company is having 100 % holding company which is listed then how many member subsidary company should have
Very informative article. thanks.
if ‘A’ co. has invested in shares of co. ‘B’ amounting to Rs. 3800000 and ‘B’ co. is having an investment in shares of co. ‘A’ amounting to Rs. 3900000. Whether these are associate companies or holding-subsidiary companies?????
Dear Divesh,
In my view, the expression “company” includes anybody corporate is applicable only to the definition of subsidiary and not to holding company. Hence a subsidiary of foreign holding company is not a subsidiary. Because foreign holding company is not a holding company as per section 2(46).
Kindly check.