Wednesday, 18 July 2012

Meaning of "Holding Company” and “Subsidiary” as per Companies Act, 1956


Simple Definitions:

Holding Company:
A holding company is a parent company that owns enough voting stock(more than 50%) in a subsidiary to make management decisions , influence  and contorl the company's board of directors.
However, holding companies that control 80% or more of the subsidiary's voting stock gain the benefits of tax consolidation, which include tax-free dividends for the parent company and the ability to share operating losses.

Subsidiary Company :
A subsidiary is a company that is controlled by a holding company or parent; this means at least 50% of its stock is controlled by another company. This 50% or greater stake gives the parent company control.

Legal Definitions As per as per Companies Act,  1956 :

Indian Company :

Section 2(26)- “Indian company” means a company formed and registered under the Companies Act, 1956 (1 of 1956), and includes- 


(i)
a company formed and registered under any law relating to companies formerly in force in any part of India (other than the State of Jammu and Kashmir and the Union territories specified in sub-clause (iii) of this clause);
(ia)a corporation established by or under a Central, State or Provincial Act;
(ib)
any institution, association or body which is declared by the Board to be a company under clause (17)   *** ;
(ii)
in the case of the State of Jammu and Kashmir, a company formed and registered under any law for the time being in force in that State;
(iii)
in the case of any of the Union territories of Dadra and Nagar Haveli, Goa, Daman and Diu, and Pondicherry, a company formed and registered under any law for the time being in force in that Union territory. 
Provided that the registered or, as the case may be, principal office of the company, corporation, institution, association or body in all cases is in India; 

***      Section 2(17) “company” means-
(i)any Indian company, or
(ii)any body corporate incorporated by or under the law of a country outside India, or
(iii)
any institution, association or body which is or was assessable or was assessed as a company for any assessment year under the Indian Income-tax Act, 1922 (11 of 1922), or which is or was assessable or was assessed under this Act as a company for any assessment year commencing on or before the 1st day of April, 1970, or
(iv)
any institution, association or body, whether incorporated or not and whether Indian or non-Indian, which is declared by general or special order of the Board to be a company:
Provided that such institution, association or body shall be deemed to be a company only for such assessment year or assessment years (whether commencing before the 1st day of April, 1971, or on or after that date) as may be specified in the declaration;

Foreign company :
Section 2(23A) -“foreign company” means a company which is not a domestic company 

Definitions as per Companies Act,  1956 :

Meaning of holding company” and “subsidiary”  
Section 4 – 
(1) For the purposes of this Act, a company shall, subject to the provisions of sub-section (3), be deemed to be a subsidiary of another if, but only if,- 



(a)that other controls the composition of its Board of directors; or
(b)
that the other exercises or controls more than one-half of its total voting power in a case where it has issued securities and such securities have the same voting rights as equity shares;  or
(c)that the other holds more than one-half in value of its paid-up capital, in any other case; 
(1A)
No company which is a subsidiary of another company shall, after the commencement of the Companies (Amendment) Act, 2003, become a holding company;
(2)
For the purposes of sub-section (1), the composition of a company’s Board of directors shall be deemed to be controlled by another company if, but only if, that other company by the exercise of some power exercisable by it at its discretion without the consent or concurrence of any other person, can appoint or remove the holders of all or a majority of the directorships; but for the purposes of this provision that other company shall be deemed to have power to appoint to a directorship with respect to which any of the following conditions is satisfied, that is to say- 
(a)
that a person cannot be appointed thereto without the exercise in his favour by that other company of such a power as aforesaid; 
(b)
that a person’s appointment thereto follows necessarily from his appointment as director or manager of, or to any other office or employment in, that other company, or 
(c)
that the directorship is held by an individual nominated by that other company or a subsidiary thereof. 
(3)In determining whether one company is a subsidiary of another- 
(a)
any shared held or power exercisable by that other company in a fiduciary capacity shall be treated as not held or exercisable   by it; 
(b)
subject to the provisions of clauses (c) and (d), any shares held or power exercisable – 
(i)
by any person as a nominee for that other company (except where that other is concerned only a fiduciary capacity); or
(ii)
by, or by a nominee for, a subsidiary of that other company, not being a subsidiary which is concerned only in a fiduciary capacity; 
shall be treated as held or exercisable by that other company; 
(c)
any shares held or power exercisable by any person by virtue of the provisions of any debentures of the first-mentioned company or of a trust deed for securing any issue of such debentures shall be disregarded; 
(d)
any shares held or power exercisable by, or by a nominee for, that other or its subsidiary not being held or exercisable as mentioned in clause(c) shall be treated as not held or exercisable by that other, if the ordinary business of that other or its subsidiary, as the case may be, includes the lending of money and the shares are held or the power is exercisable as foresaid by way of security only for the purposes of a transaction entered into in the ordinary course of that business. 
(4)
For the purposes of this Act, a company shall be deemed to be the holding company of another if, but only, if that other is its subsidiary
(5)
In this section, the expression “company” includes any body corporate, and the expression “equity share capital” has the same meaning as in sub-section (2) of section 85. 
(6)
In the case of a body corporate which is incorporated in a country outside India, a subsidiary or holding company of the body corporate under the law of such country shall be deemed to be a subsidiary or holding company of the body corporate within the meaning and for the purposes of this Act also, whether the requirements of this section are fulfilled or not. 
(7)
A private company, being a subsidiary of a body corporate incorporated outside India, which, if incorporated in India, would be a public company within the meaning of this Act, shall be deemed for the purposes of this Act to be a subsidiary of a public company if not less than ninety-nine per cent. of the share capital   in that private company is not held by that body corporate whether alone or together with one or more other bodies corporate incorporated outside India. 

Source : http://www.cbec.gov.in/aar/definitions.htm

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