HOLDING AND SUBSIDIARY COMPANIES

Holding  and subsidiary companies are relative terms. A company is holding company of another if the other is its subsidiary.

According to the section 4, a company shall be deemed to be subsidiary of another, if and only if

i)  that other controls the composition of Board of directors ; 

Explanation: Company A(holding company) controls the composition of the board of directors of Company B(subsidiary company). Company A can appoint or remove all or majority of directors of the Company B.

                                                or

ii) where the first mentioned company is any other company, holds more than half in the nominal value of its equity share capital ;

Explanation:Company A(holding company) holds more than 51% of  equity shares(voting power)  of Company B(subsidiary company) or more than 50% of voting powers through preferential shares.

Here any shares held by virtue of the provisions of any debentures of the first mentioned company (company A) or of a trust deed for securing issue of such debentures shall be disregarded.

                                               or

iii) the first mentioned company is a subsidiary of any company which is the other's subsidiary

Explanation: Company B (subsidiary company)  is a subsidiary of company C which is subsidiary of company A, then the company B is also a subsidiary of company A.

RELEVANT SECTIONS: SECTION 4, SECTION 41, SECTION 42.