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Unit 3: Kinds of Companies

A B C D Notes
(a) 4 1 2 3
(b) 2 1 4 3
(c) 1 4 3 2

(d) 3 2 4 1

3.4 Classification on the Basis of Control

On the basic of control, companies can be divided into:
1. Holding companies

2. Subsidiary companies
3.4.1 Holding and Subsidiary Companies

Where a company has control over another company, it is known as the Holding Company. The
company over which control is exercised is called the Subsidiary Company. A company is
deemed to be under the control of another if:
That other controls the composition of its Board of Directors.
The other company holds more than half in nominal value of its equity share capital
(where a company had preference shareholders, before commencement of this Act, enjoying
voting rights with that of equity shareholders, for the purpose of control, holding company
should enjoy more than half of the total voting power).
It is a subsidiary of a third company which itself is a subsidiary of the controlling company.
For example, where company ‘B’ is a subsidiary of company ‘A’ and company ‘C’ is a
subsidiary of company ‘B’, then company ‘C’ shall be a subsidiary of company ‘A’.
If company ‘D’ is a subsidiary of company ‘C’, then company ‘D’ shall also be a subsidiary
of company ‘B’ and consequently also of company ‘A’.
Thus, in order to be holding company, a company must either control the composition of the
Board of Directors or hold more than half of the nominal value of the equity share capital of
another company.

Task In a private limited company it is discovered that there are, in fact, fifty four members.
On an enquiry, it is ascertained that six of the members have been employees of the
company in the recent past and that they acquired their shares while they were still
employees of the company. Is it necessary to convert the company into a public limited
company? [Hint: There is no need for conversion. Employee members and ex-employee
members are excluded from the number of fifty - the maximum members of a private
company. See s.3(1) (iii);].

Company Controlling Composition of Board of Directors

The composition of the Board of Directors of a company shall be deemed to be controlled if the
latter has the power, without the consent or concurrence of the other person, to appoint or
remove the holders of all or majority of the directorships.

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