Subsidiary Company

Subsidiary company is any company whose interests are held and controlled or held by another company. Paid up equity share capital and preference share capital of the subsidiary company can be used to determine the holding company - subsidiary company relationship between two companies. In this article, we look at some of the basics of a Subsidiary Company - holding company relationship.

Subsidiary Company Definition

According to the Companies Act, if a company is holding more than half in the nominal value of equity share capital of another company, then such company is considered a subsidiary of first mentioned company. Further, a Subsidiary Company - holding company relationship can also be established by the composition of a company’s Board of Directors. A company will be deemed to be controlled by another company, even if he same is not essentially so controlled, if that other company by exercise of some power exercisable by it at its discretion is able to appoint or remove all or a majority of the directors. Hence, as per the Companies Act, 2013, the right to appoint majority of the directors or to be able to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, as well as by high merit of their shareholding or management rights or shareholders agreements or voting agreements or in any other method - is deemed to create a Subsidiary Company relationship.

Control by Shareholding

The following methodology is used to determine if a Subsidiary Company - holding company relationship is established by shareholding.

The term ‘total share capital’ is not defined under the terms of Companies Act, 2013. Nevertheless, the term ‘share’ is defined to mean a share in share capital of a company and is inclusive of stock. Hence, both equity share capital and preference share capital are considered during the calculation. Hence, if more than 50% of paid-up equity share capital, and convertible preference share capital related to a company inclusive of a body corporate that is exercised or controlled by another company, the former company therefore becomes Subsidiary Company.

Control by Board of Directors

The composition related to a company’s Board of Directors will be deemed to be controlled by another company, even if the same is not essentially so controlled, if that other company by exercise of some power exercisable by it at its discretion can employ or remove all or a majority of the directors. Know more about starting an Indian subsidiary company in india.

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Frequently Asked Questions

Common questions about Subsidiary Company Structure and Control.

A subsidiary company is a company that is controlled by another company, known as the holding company. The holding company owns more than 50% of the subsidiary company's equity share capital or has the power to appoint or remove a majority of its directors.

The subsidiary company - holding company relationship is primarily determined by the holding company's ownership stake in the subsidiary company's paid-up equity share capital and preference share capital. If the holding company owns more than 50% of the subsidiary's total share capital, it is considered a subsidiary. The relationship can also be established based on the holding company's ability to control the subsidiary's Board of Directors.

If a company has the power to appoint or remove a majority of the directors on another company's Board of Directors, even without holding a majority stake in its share capital, the latter company is considered a subsidiary of the former. The ability to control the management and policy decisions of a company through its Board is deemed as establishing a subsidiary company relationship.

Yes, both equity share capital and convertible preference share capital are considered when determining if a company is a subsidiary of another. The term "total share capital" includes both equity and preference shares.

Yes, a company can be considered a subsidiary of another company even if the latter does not hold a majority stake in its share capital. This can happen if the holding company has the ability to control the management and policy decisions of the other company through means such as shareholder agreements, voting agreements, or the power to appoint a majority of directors.

The Companies Act, 2013 defines a "share" as a share in the share capital of a company, which includes stock. Therefore, the term "share capital" encompasses both equity share capital and preference share capital when determining a subsidiary company relationship.

Yes, a body corporate that exercises control or has the power to control another company can be considered a holding company for that subsidiary company. The control can be exercised through shareholding, management rights, or other means.

Shareholder agreements and voting agreements can establish the ability of one company to control the management and policy decisions of another company, even without holding a majority stake in its share capital. Such agreements can create a subsidiary company relationship.

Yes, it is possible for a company to be considered a subsidiary of multiple holding companies if more than one company holds a significant stake in its share capital or has the ability to control its management and policy decisions.

Establishing a subsidiary company - holding company relationship allows for corporate structures where a parent company can exercise control and oversight over the operations and decision-making of its subsidiary companies. This structure can be beneficial for strategic planning, resource allocation, and overall management of a group of companies.