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Explain meaning, functions and the differences between holding company and subsidiary company.

      

Explain meaning, functions and the differences between holding company and subsidiary company.

  

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sharon
The Companies Act section 486 on the recognition of the separate personality of each individual company is in connection with associated companies within the same group enterprise. In practice it is common for a company to create an organisation of inter-related companies each of which is theoretically a separate entity but in reality part of one concern represented by the group as a whole. Such is particularly the case when one company is the parent or holding company and the rest are its subsidiaries.

Under Section 154 of the Companies Act Cap 486 a company is deemed to be a subsidiary of another if but only if
(a)That other company either
(i)is a member of it and controls the composition of its board of directors or
(ii)Holds more than half in nominal value of its equity share capital or

(b)The first mentioned company is a subsidiary of any company which is that other’s subsidiary.
Under Section 150 (1) where at the end of the financial year a company has subsidiaries, the accounts dealing with the profit and loss of the company and subsidiaries should be laid before the company in general meeting when the company’s own balance sheet and profit and loss account are also laid. This means that group accounts must be laid before the general meeting.

The group accounts should consist of a consolidated balance sheet for the company and subsidiary and also of a consolidated profit and loss account dealing with the profit and loss account of a company.
Section 151(2) – it may be observed that the treatment of these accounts in a consolidated form qualify an old rule that each company constitutes a separate legal entity. The statute here recognises enterprise entity rather than corporate entity i.e. the veil of incorporation will be lifted so that they will not be regarded as separate legal entities but will be treated as a group

sharon kalunda answered the question on April 15, 2019 at 05:31


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