# Holding Company, Associate Company & Control

These three definitions handle inter-corporate relationships — when one company influences another.

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

> A company is a holding company of another company if that other company is its subsidiary.

(The definition is circular — for the full picture you must read Sec 2(87) — subsidiary company.)

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

A company in which another company has significant influence, but which is:

NOT a subsidiary of the influencing company; AND
INCLUDES a joint venture company.

### Significant Influence — defined

Either:

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

### Joint Venture — defined

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

### Important Clarification

> Shares held by a company in another company in a fiduciary capacity are NOT counted for determining the associate-company relationship.

Fiduciary = a person who holds a legal/ethical relationship of trust, typically managing money or assets for another.

## 3. Control [Sec 2(27)]

Inclusive definition — Control SHALL INCLUDE:

Source of control	Example
Right to appoint majority of directors	Holding 60% voting shares
Right to control management or policy decisions	By contract / charter
Acting individually or in concert, directly or indirectly	Promoter group control
Shareholding / management rights / shareholders' agreements / voting agreements	SHA giving veto over key decisions

> Control can be de jure (legal — majority shares) or de facto (effective — through agreements). The definition is wide enough to catch both.

## Summary Hierarchy

Relationship	Threshold
Associate	≥ 20% voting power OR participation in business decisions
Subsidiary	> 50% (control of composition of Board OR control of more than 1/2 of total voting power) [Sec 2(87)]
Holding	Has a subsidiary

Worked example

### Example 1

Q: A Ltd holds 25% voting power in B Ltd; the rest is widely held. A Ltd has no Board majority. What is B's status w.r.t. A?

A: B is an Associate of A under Sec 2(6) — A has significant influence (≥20%) but not control.

### Example 2

Q: X Bank Ltd holds 30% shares of Y Ltd as a trustee for its mutual fund clients. Does Y qualify as X's associate?

A: No. Shares held in a fiduciary capacity are excluded for determining the associate-company relationship — clarification to Sec 2(6).

### Example 3

Q: A shareholders' agreement gives Mr. P (a 15% shareholder) a veto over all major business decisions of Z Ltd. Does Mr. P have 'control'?

A: Yes. Sec 2(27) includes control of policy decisions through shareholders' agreements — Mr. P controls Z despite holding under 50%.

⚠️ Common exam mistakes

Treating any 20% shareholding as making the company an associate — voting power, not equity holding, is the test.
Counting fiduciary-held shares toward the 20% associate threshold — the clarification excludes these.
Assuming control requires majority shareholding — Sec 2(27) is wider (includes SHAs, voting agreements).
Confusing associate (≥20% but not subsidiary) with subsidiary (>50% voting power or Board control).

Bare-Act text Section 2(6), 2(27), 2(46) · 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. 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. Explanation. — (a) '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) '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. Sec 2(27): 'Control' shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner.

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Holding, Associate Company & Control

Worked example

⚠️ Common exam mistakes