## Subsidiary Company / Subsidiary [Section 2(87)]

### Definition

A 'subsidiary company' or 'subsidiary', in relation to any other company (called the holding company), means a company in which the holding company:

1. Controls the composition of the Board of Directors; OR

2. 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.

### Layers of Subsidiaries

The Central Government may prescribe such class or classes of holding companies as shall not have layers of subsidiaries beyond such numbers as may be prescribed.

### Critical Rule on Counting Shares

Shares held by a company or power exercisable by it in another company in a fiduciary capacity shall NOT be counted for the purpose of determining the holding–subsidiary relationship.

### Two Tests at a Glance

Test	What it checks
Composition of Board test	Does Co. A control who sits on the Board of Co. B?
Voting Power test	Does Co. A (alone or with its subsidiaries) hold > 50% voting power in Co. B?

Satisfying either test is sufficient to make Co. B a subsidiary of Co. A.

Worked example

### Example 1

Q. H Ltd. holds 45% voting power in S Ltd. H's wholly-owned subsidiary, T Ltd., holds another 10% voting power in S Ltd. Is S a subsidiary of H?

A. Voting power held by H together with its subsidiary (T) = 45% + 10% = 55%, which is more than one-half. Hence, S Ltd. is a subsidiary of H Ltd. under the second limb of Section 2(87).

### Example 2

Q. P Ltd. holds 60% shares of Q Ltd., but holds them as a trustee for the benefit of beneficiaries under a trust. Is Q a subsidiary of P?

A. Shares held in a fiduciary capacity are excluded for determining the holding–subsidiary relationship. Hence Q Ltd. is NOT a subsidiary of P Ltd.

⚠️ Common exam mistakes

Adding shares held in fiduciary capacity while computing voting power.
Treating both tests (board composition AND voting power) as cumulative — they are alternative.
Ignoring the indirect voting power held through other subsidiaries.
Confusing 'one-half' with '50%' — the section uses 'more than one-half' (i.e., > 50%, not ≥ 50%).

Bare-Act text Section 2(87) · Companies Act, 2013 · click to expand

'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: 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, ... (d) the shares held by a company or power exercisable by it in another company in a fiduciary capacity shall not be counted for the purpose of determining the holding-subsidiary relationship.

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Subsidiary Company [Section 2(87)]

Worked example

⚠️ Common exam mistakes