Where one company controls the management of another company the former is called the ‘Holding Company’ and the latter over which the control is exercised is termed as a ‘Subsidiary Company’. The Act defines these terms as follows:
Holding company :
“A company shall be deemed to be the holding company of another, if that other is its subsidiary” [Sec. 4 (4)].
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Subsidiary company :
A company shall be deemed to be a subsidiary of another.
(a) if that other company controls the majority composition of its Board of Directors with the sole object of controlling its management; or
(b) if that other company holds more than half in nominal value of its equity share capital; or
(c) in the case of a private company in respect whereof the preference shareholders and equity shareholders may enjoy similar voting rights, if that other company is itself an independent private company and holds more than half of its total voting power; or
(d) if it is a subsidiary of any other company which is that other company’s subsidiary. For example: If company B is a subsidiary of company A and company C is a subsidiary of company B, company C will become a subsidiary of company A by virtue of this clause. If company D is a subsidiary of company C, company D will be a subsidiary of company B and consequently also of company A; and so on