# Holding, Subsidiary and Associate Companies

These three relationships classify companies based on the degree of control or influence one company has over another.

## 1. Holding Company [Sec. 2(46)]

A company is a holding company in relation to one or more other companies when those other companies are its subsidiaries.

> The term 'company' here includes any body corporate — so a foreign body corporate can also be a holding company.

## 2. Subsidiary Company [Sec. 2(87)]

Company B is a subsidiary of Company A (the holding company) if A:

1. Controls the composition of B's Board of Directors, OR

2. Exercises or controls more than 50% of B's voting power, either:

On its own, OR
Together with one or more of its subsidiaries.

### Key Concepts

Concept	Meaning
Deemed subsidiary	A company controlled indirectly through another subsidiary is still a subsidiary. (A → B → C: C is also subsidiary of A.)
Control of BOD	Power to appoint/remove majority of directors at the holding company's discretion.
Shares in fiduciary capacity	Shares held as a trustee are ignored — do not count for subsidiary status.
Layer restriction	A holding company cannot have layers of subsidiaries beyond the prescribed limit.

## 3. Associate Company [Sec. 2(6)]

(Note: The Act assigns Sec. 2(6) to Associate Company.)

A company in which another company has significant influence, but which is not a subsidiary. Includes a joint venture.

### Significant Influence means EITHER:

Control of at least 20% of total voting power, OR
Control of, or participation in, business decisions under an agreement.

### Joint Venture

A joint arrangement where parties having joint control have rights to the net assets of the arrangement.

### Important Notes

Shares held in a fiduciary capacity are excluded when determining associate status.
Voting Power = total votes that can be cast in a poll if all eligible members are present and vote.

## Quick Comparison Table

Relationship	Threshold	Section
Associate	≥ 20% voting power OR business-decision control	2(6)
Subsidiary	> 50% voting power OR BOD control	2(87)
Holding	Reverse side of subsidiary relationship	2(46)

Worked example

### Example 1

Example 1 — Subsidiary by voting power: Company A holds 55% of voting power in Company B. → B is a subsidiary of A; A is the holding company. Result: > 50% threshold satisfied under Sec. 2(87).

### Example 2

Example 2 — Deemed subsidiary: A holds 60% in B; B holds 55% in C. → C is a deemed subsidiary of A through B, even though A has no direct shareholding in C.

### Example 3

Example 3 — Fiduciary shares ignored: X Ltd holds 30% in Y Ltd in its own name and 25% as a trustee for an employee trust. → For determining subsidiary/associate status, only 30% counts. Since it's not > 50%, Y is not a subsidiary — but it is an associate (≥ 20%).

### Example 4

Example 4 — Control of BOD: P Ltd holds only 10% shares in Q Ltd, but by an agreement can appoint 7 of Q's 10 directors. → Q is a subsidiary of P (control of BOD composition), even though voting power is under 50%.

⚠️ Common exam mistakes

Confusing the 20% (associate) threshold with the 50% (subsidiary) threshold.
Forgetting that BOD control alone (without 50% shareholding) makes a company a subsidiary.
Counting shares held in a fiduciary/trustee capacity towards subsidiary or associate determination — these must be excluded.
Missing the concept of 'deemed subsidiary' through a chain — control via a subsidiary still creates the holding-subsidiary link.
Forgetting that 'company' under Sec. 2(46) includes body corporate (so a foreign body corporate can be a holding company).

Bare-Act text Sec. 2(46), 2(87), 2(6) · Companies Act, 2013 · click to expand

Sec. 2(46) — 'Holding company', in relation to one or more other companies, means a company of which such companies are subsidiary companies; the expression 'company' includes any body corporate. Sec. 2(87) — '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 — (i) controls the composition of the Board of Directors; or (ii) exercises or controls more than one-half of the total voting power either at its own or together with one or more of its subsidiary companies. Sec. 2(6) — 'Associate company', in relation to another company, means a company in which that other company has a significant influence, but which is not a subsidiary company of the company having such influence and includes a joint venture company.

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