Under the Companies (Amendment) Act, 2017, an amendment has been introduced in Section 2(6) ‘the definition of Associate Company’. For understanding the meaning and implication of the amendment first we need to understand what was the definition of Associate Company as per Companies Act, 2013 and thereafter we will understand what changes have been made in the new Amendment Act, thereafter a comparative analysis can be interpreted and implication of such amendment can be considered accordingly.
- Definition of Associate Company as per Section 2(6) of Companies Act, 2013
―associate company‖, in relation to another company, means a company in which that other company has a significant influence, but which is not a subsidiary company of the company having such influence and includes a joint venture company.
Explanation.—For the purposes of this clause, ―significant influence‖ means control of at least twenty percent of total share capital, or of business decisions under an agreement;
For example:
Company “A” controls 20% or more but up to 50% of total share capital (equity and convertible preference) , or of business decisions under an agreement of Company “B” then the Company “B” will be called Associate Company of Company “A” (other Company).
―where as per Sec 2(27): control shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner;
“associate”, in relation to another company, means a company in which that other company has a significant influence, but which is not a subsidiary company of the company having such influence and includes a joint venture company.
Explanation.—For the purpose of this clause,—
(a) the expression “significant influence” means control of at least twenty percent of total voting power, or control of or participation in business decisions under an agreement;
(b) the expression “joint venture” means a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement;
For example: Company “A” controls 20% or more but upto 50% of total voting power, or control of or participation in business decisions under an agreement of Company “B” then the Company “B” will be called Associate Company of Company “A” (other Company).
where as per Sec 2(89) ―total voting power‖, in relation to any matter, means the total number of votes which may be cast in regard to that matter on a poll at a meeting of a company if all the members thereof or their proxies having a right to vote on that matter are present at the meeting and cast their votes;
Comparative Analysis of previous and amended definition:
The amendment Act substitutes the explanation of the term significant influence under the definition of an associate company in Section 2(6) to mean control of atleast 20% of the voting power (in place of total share capital) or control or participation in business decision under an agreement.
Impact of Amendment:
The Impact would be –
- Total voting power defined in 2(89) to be referred
- Control through total voting power only & not just by holding capital
- Agreement is essential element to establish control through participation
- Term JV clarified – covers all partner of JV
- Definition crucial in view of consolidation of accounts, RPT, disclosures provisions, etc.
Thanks for reading.
FAQs
Definition of Associate Company:
As per Section2(6) of the Companies Act, 2013, an “associate company (A)”, in relation to another company (B), refers to a company in which that other company (B) has a significant influence, but which is not a subsidiary company of the company having such influence.
What is the companies Amendment 2017? ›
The Companies Amendment Act, 2017
The Amendment Act expands the definition of KMP by giving the board of directors the power to designate an officer of the Company, one level below the director who is in whole time employment of the company, as a KMP.
What is the amendment to the Companies Act? ›
The amendments to the Companies Act are in relation to beneficial ownership and gives the Companies and Intellectual Property Commission (CIPC) a mandate to request companies to file and update Beneficial Ownership information, as and when applicable.
What is a subsidiary company as per Companies Act? ›
According to the Companies Act, if a company is holding more than half in the nominal value of equity share capital of another company, then such company is considered a subsidiary of first mentioned company.
How do you define an associated company? ›
Two or more companies are associated when the same person or group of persons can control both, either personally, or via their interests in other corporate shareholders. A company is an associated company of another at any time when: One of the two has control of the other, or.
What does it mean to be an associate of a company? ›
Some companies describe their low-level employees, such as sales assistants or servers, as associates. This is often done to show the value the company places in its employees. Associates may have fewer responsibilities than higher-level employees but they are often on a track toward a pay raise or promotion.
What is an amendment in a company? ›
An amendment is a change or addition to the terms of a contract or document. An amendment is often an addition or correction that leaves the original document substantially intact. Other times an amendment can strike the original text entirely and substitute it with new language.
What is the new companies amendment? ›
The Companies (Amendment) Act 2024 (“CA 2024”) has been gazetted on 2 February 2024 after receiving royal assent but is not yet in force. The tentative effective date for the revised beneficial ownership reporting framework is likely to be around 1 April 2024.
What is the new amendment in definition of small company? ›
The New definition of a Small Company
According to section 2(85) of the Companies Act, 2013, a small company means a company that meets the following criteria: Condition 1: Paid-up capital of the company should not exceed INR 4 Crores; and. Condition 2: Turnover of the company should not exceed INR 40 Crores.
Why do companies have First Amendment rights? ›
Until the 1970s, the Supreme Court denied First Amendment free speech protections for commercial actors. But as more and more cases involving commercial speech were analyzed, the Court concluded that there was some social value to commercial speech that warrants First Amendment protection.
California LLCs file an Amendment to Articles of Organization when the LLC's name needs changed, or if there is a need to update the LLC's management structure from member-managed to manager-managed (or the other way around).
Which amendment protects corporations? ›
One of the strangest twists in American constitutional law was the moment that corporations gained personhood under the Equal Protection Clause of the Fourteenth Amendment.
What is an example of an associate company? ›
Practical Example
Berkshire Hathaway, a conglomerate holding company, holds significant minority holdings in multiple organizations. It owns 17.6% of American Express and 26.7% of the Kraft Heinz Company, among many others. Legally, this means that the companies are associate companies of Berkshire Hathaway.
What is the difference between subsidiary and associate company? ›
An associate company, in its broadest sense, is a corporation in which a parent company possesses an ownership stake. Usually, the parent company owns only a minority stake of the associate company, as opposed to a subsidiary company, in which a majority stake is owned.
What is an associate company under Companies Act 2013? ›
(6) "associate company", in relation to another company, means a company in which that other company has a significant influence, but which is not a subsidiary company of the company having such influence and includes a joint venture company.
What does Associate mean in the Corporations Act? ›
One entity (the associate ) is an associated entity of another entity (the principal ) if subsection (2) , (3) , (4) , (5) , (6) or (7) is satisfied. 50AAA(2) This subsection is satisfied if the associate and the principal are related bodies corporate.
What is an associated company under Companies Act 2006? ›
(b)companies are associated if one is a subsidiary of the other or both are subsidiaries of the same body corporate.
What is the difference between an affiliated company and an associate company? ›
In most cases, affiliate and associate are used synonymously to describe a company with a parent company that only possesses a stake of between 20 and 50% ownership of the company. A minority stake is ownership or interest of less than 50% of a company.
What is the definition of associate company as per accounting standard 18? ›
- Clause 10.5 of AS 18 defines “Associate” as an enterprise in which an investing reporting party has significant influence and which is neither a subsidiary nor a joint venture of that party.
