Holding Company & Subsidiary Company.docx
INTRODUCTION
One of the popular firms of business combination is by means of holding company or
Parent Company. A holding company is one which directly or indirectly acquires either all or more than half the number of Equity shares in one or more companies so as to secure a controlling interest in such companies, which are then known as subsidiary companies. Holding companies are able to nominate the majority of the directors of subsidiary company and therefore control such companies. Holding company meet directly from such subsidiary company or it may acquired majority OR shares in existing company. Such company also considered as subsidiary company in which holding company acquired majority shares.
MEANING UNDER COMPANIES ACT 1956
Section 4 of the companies Act, 1956 defines a subsidiary company. A company is a subsidiary of another if and only if –
a) That other company controls the composition of its Board of
Directors; or
b) That other –
i) Where the first mentioned company is an existing company in respect of which the holders of Preference shares issued before the commencement of this Act have the same voting rights in all respect as the holders of Equity shares exercises or controls more than half of the total voting power of such company.
ii) Where the first mentioned company is any other company, holds more than half in nominal value of its Equity share capitals. OR
1|P a ge
iii) The company is a subsidiary of any company which is that other company’s subsidiary. Advantages of Holding Company:Following are the important advantages of holding company:
1. Easy Formation:The holding company can be formed very easily. There is no legal formality. Any company may purchase the majority shares from stock exchange and can become holding company.
2. Large Business:A holding company can collect the capital and expand the business on large scale.
3. Foreign Capital:The holding company may also attract the foreign
One of the popular firms of business combination is by means of holding company or
Parent Company. A holding company is one which directly or indirectly acquires either all or more than half the number of Equity shares in one or more companies so as to secure a controlling interest in such companies, which are then known as subsidiary companies. Holding companies are able to nominate the majority of the directors of subsidiary company and therefore control such companies. Holding company meet directly from such subsidiary company or it may acquired majority OR shares in existing company. Such company also considered as subsidiary company in which holding company acquired majority shares.
MEANING UNDER COMPANIES ACT 1956
Section 4 of the companies Act, 1956 defines a subsidiary company. A company is a subsidiary of another if and only if –
a) That other company controls the composition of its Board of
Directors; or
b) That other –
i) Where the first mentioned company is an existing company in respect of which the holders of Preference shares issued before the commencement of this Act have the same voting rights in all respect as the holders of Equity shares exercises or controls more than half of the total voting power of such company.
ii) Where the first mentioned company is any other company, holds more than half in nominal value of its Equity share capitals. OR
1|P a ge
iii) The company is a subsidiary of any company which is that other company’s subsidiary. Advantages of Holding Company:Following are the important advantages of holding company:
1. Easy Formation:The holding company can be formed very easily. There is no legal formality. Any company may purchase the majority shares from stock exchange and can become holding company.
2. Large Business:A holding company can collect the capital and expand the business on large scale.
3. Foreign Capital:The holding company may also attract the foreign
References: www.muac.in www.wikipedia.org www.sun.in www.ril.com 29 | P a g e