Where a company has control over another company, it is known as the Holding Company and the company over which control is exercised is called the Subsidiary Company. A company is deemed to be under the control of another if:
(1) that other controls the composition of its Board of Directors; or
(2) the other company holds more than half in nominal value of its equity share capital (where a company had preference shareholders, before commencement of this Act, enjoying voting rights with that of equity shareholder, for the purpose of control, holding company should enjoy more than half of the total voting power);
(3) it is a subsidiary of a third company which itself is a subsidiary of the controlling company. For example, where company ‘B’ is a subsidiary of company ‘A’ and company ‘C’ is a subsidiary of company ‘B’, then company ‘C’ shall be a subsidiary of company ‘A’. If company ‘D’ is a subsidiary of company ‘C’, then company ‘D’ shall also be a subsidiary of company ‘B’ and consequently also of company ‘A’.
Thus, in order to be holding company, a company must either control the composition of the Board of Directors or hold more than half of the nominal value of the equity share capital of another company.
Control of composition of board of directors. The composition of the Board of Directors of a company shall be deemed to be controlled if the latter has power, without the consent or concurrence of the other person, to appoint or remove the holders of all or majority of the directorships.
A company shall be deemed to have the power to appoint a person as a director in other company in the following cases:
1. Where a person cannot be appointed thereto without the exercise in his favour by the company of such a power of appointment.
2. Where a person’s appointment or directorship follows necessarily from his appointment as director, or manager of, or to any other office or employment in the company.
3. Where a directorship is held by an individual nominated by the company or a subsidiary thereof.
In determining whether one company is a subsidiary of another, following shall be disregarded:
1. Any shares held or power exercisable by the other company in a fiduciary capacity shall be treated as not held or exercisable by it.
2. Any shares held or power exercisable in a company by any person under provisions of its debentures or of a trust-deed for securing any issue of such debentures shall be disregarded.
3. Any shares held or power exercisable by, or by a nominee for a company or its subsidiary, other than as in clause (2) above, shall be treated as not held or exercisable by it if the ordinary business of that other company is lending money and the shares are held or power is exercisable only by way of security in the ordinary course of business.
However, shares held or power exercisable by any person as a nominee of that other company shall be treated as held or exercisable by said company. Thus, the shares held or power exercisable by a subsidiary shall be treated as ‘held’ or ‘exercisable’ by the holding company. For example, ‘B’ and ‘C’, are subsidiaries of company ‘A’, and both of then hold together more than half of the equity share capital of company ‘D’ then ‘D’ shall be deemed to be a subsidiary of ‘A’ although it has not made any direct investment nor ‘B’ or ‘C’ singly hold more than 50% shares, in the company ‘D’.
No comments:
Post a Comment