A company shall be deemed to be a subsidiary of another

A company shall be deemed to be a subsidiary of another Disclaimer: This work has been submitted by a student. This is not an example of the work produced by our Law Essay Writing Service . You can view samples of our professional work here . A company shall be deemed to be a subsidiary of another According to section 4 of the Companies Act, a company shall be deemed to be a subsidiary of another, if and only if: (a) that other controls the compositions of its Board of directors; or (b) that other holds more than half in nominal value of its equity share capital(where a company had preference share holders, before commencement of the Companies Act,1956, enjoying voting rights with that of equity shareholder, for the purpose of control, holding company should enjoy more than half of the total voting power)   [ 1 ]   ; or (c) the first-mentioned company is a subsidiary of any company which is that other’s subsidiary. 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 the 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.   [ 2 ]    In the case of M.Velayudhan v. Registrar of Companies   [ 3 ]   the position regarding holding-subsidiary relationship was extensively laid down : â€Å"Sec. 4 envisages the existence of subsidiary companies in different situations. It may be that by acquiring sufficient share capital of a company, sufficient control may be obtained over the company to enable control in the composition of BOD. But, it is also possible to obtain such control in regard to the composition of the BOD without making such an in equity capital of the company. Such control may be by reason of an agreement such as where one company may agree to advance funds to another company and in return may, under the term of an agreement, gain control over the right to appoint all or a majority of BOD. The first of the cases envisaged in section 4 is the case where a control is obtained by a company in the matter of composition of the BOD of another company. That would be sufficient to constitute the former as holding company and the other as subsidiary. The second type of cases is where more than half of the nominal value of the equity share capital is held by another company. By virtue of such holding that other company becomes a holding company and the one whose share are so held becomes a subsidiary company. The third case envisaged is where The Use Of Subsidiary Corporations The control of subsidiaries may be accomplished through the creation of a separate corporation to handle a distinct phase of the company’s business, or through the purchase of interests in companies previously existing, the main corporation being in this case the holding company. The use of subsidiary corporations is becoming more and more extensive. A certain manufacturing corporation, for instance, has one operating company, one selling company, one purchasing company, one company owning a short railroad, one real estate company to buy land and erect buildings, and another company to operate these build ings. The United Cigar Stores Company also has a distinct corporation for the handling of its real estate operations.