## Associate Company [Section 2(6)]

### Definition

In relation to another company, 'Associate Company' means a company in which that other company has 'significant influence', but which is not a subsidiary company of the company having such influence, and includes a joint venture company.

### What is 'Significant Influence'?

'Significant influence' means control of at least 20% of the total voting power OR control of or participation in business decisions under an agreement.

### Key Carve-out

Shares held by a company in another company in a fiduciary capacity shall NOT be counted for determining the associate company relationship.

### Summary Table — Voting Power Thresholds

Voting Power	Relationship
Less than 20%	No special relation
20% or more (but not > 50%)	Associate Company
More than 50% (or board control)	Subsidiary Company
100%	Wholly-owned Subsidiary

### How Voting Rights Are Exercised (cross-reference)

A member exercises voting rights in any of the following ways:

At a meeting of the company;
By means of postal ballot;
Through electronic voting at the company's general meeting.

Worked example

### Example 1

Q. L Ltd. holds 25% of the voting power of M Ltd. M Ltd. is not a subsidiary of L Ltd. What is M's status in relation to L?

A. Holding 20% or more voting power constitutes 'significant influence'. Since M is not a subsidiary, M Ltd. is an Associate Company of L Ltd. under Section 2(6).

### Example 2

Q. A Ltd. holds 18% of B Ltd.'s voting power, but under a joint venture agreement, A has the right to participate in B's business decisions. Is B an associate of A?

A. Yes. Significant influence also arises through participation in business decisions under an agreement, irrespective of the 20% threshold. Hence B is an Associate of A.

⚠️ Common exam mistakes

Believing that significant influence arises only through 20% voting power — participation through an agreement is also covered.
Failing to recognise joint venture companies — they are expressly included as associate companies.
Counting shares held in fiduciary capacity.
Confusing the upper threshold — associate stops where subsidiary begins (i.e., > 50% voting power or board control).

Bare-Act text Section 2(6) · Companies Act, 2013 · click to expand

'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. Explanation. — For the purposes of this clause — (a) the expression 'significant influence' means control of at least twenty per cent. of total voting power, or control of or participation in business decisions under an agreement; (b) the expression 'joint venture' means a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.

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