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Before Amendment

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—

  • controls the composition of the Board of Directors; or
  • 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 company shall be deemed to be a subsidiary company of the holding company even if the control referred to in point (i) &(ii) is of another subsidiary company of the holding company;
  • 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 at its discretion can appoint or remove all or a majority of the directors;
  • the expression “company” includes any body corporate;
  • “layer” in relation to a holding company means its subsidiary or subsidiaries;

After Amendment

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—

  • controls the composition of the Board of Directors; or
  • exercises or controls more than one-half of the total share capital Total Voting Power* 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 company shall be deemed to be a subsidiary company of the holding company even if the control referred to in point (i) &(ii) is of another subsidiary company of the holding company;
  • 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 at its discretion can appoint or remove all or a majority of the directors;
  • the expression “company” includes any body corporate;
  • “layer” in relation to a holding company means its subsidiary or subsidiaries;

ANALYSIS

Earlier, the provision provides that, where the holding company holds or controls more than half of the total share capital of the other company, then the other company will be termed as subsidiary company.

But, what about the companies which are having no share capital or guarantee company. For instance, a club, where there is no share capital as club run its operations through donations, membership fess or subscriptions. Then, even if any Company is acquiring control over the club, the club will never be considered as subsidiary.

That is the major reason to introduce the amendment as the companies which were having no share capital were not considered as subsidiary in any case as the control was only prescribed by the acquisition of share capital.

But, now as the definition has been amended by introducing the word ‘total voting power’, the guarantee companies will also will be considered as Subsidiary Company.

CA Ankit Oberoi
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