Under section 154(1) of the companies Act, A company is a subsidiary of another is either:
(i) The holding company is a member of it and controls the composition of its board of directors.
(ii) The holding company holds more than half in nominal value of the subsidiaries equity share capital.
(iii) The subsidiary is a subsidiary of another company which is a subsidiary of the holding company.
– It is important to ascertain whether a company is a subsidiary of another since the relationship is regulated specific provisions of the companies Act.
(a) Under section 29 of Act, a body corporate cannot be a member of its holding company and any allotment or transfer of shares of a company to its subsidiary is void.
(b) Under section 150(1) of the Act, if at the end of the financial year a company has subsidiaries, directors of the company must lay group accounts of the company and its subsidiaries before the general meeting of the company
(c) Under section 161(3) of the Act, a person disqualified for appointment as auditor for the holding company is likewise disqualified for the appointment as auditor for the subsidiary and vice versa.
(d) Under section 167 of the Act, an inspector appointed the court to investigate the affairs of the holding or subsidiary and company is empowered to investigate the affairs of the other company if such investigation is necessary.
(e) Under section 191(1) of the Act, as a general rule it is unlawful for a company to make a loan to any person who is its director or a director of the holding company.
(f) Under section 201 of the Act, a company with subsidiaries must keep a register of its directors and secretary and those of its subsidiaries.
– Under section 154(4) of the Act, a company shall be deemed to be another‟s holding company if, but only if, that other is its subsidiary