Associate Company

An associate company is defined under Section 2(6) of the Companies Act, 2013 as a company in which another company holds significant influence, but which is not that other company's subsidiary. The definition expressly includes a joint venture company. Significant influence gives the investing company a real say in the associate's affairs without amounting to outright control.

Significant influence

The Act explains significant influence as control of at least 20% of the total voting power, or control of (or participation in) business decisions under an agreement. In practice this maps to a 20–50% holding: below 20% points to an ordinary investment, while more than 50% usually creates a subsidiary instead. The reference point was changed from "total share capital" to "total voting power" by the Companies (Amendment) Act, 2017.

Why the status matters

• An associate is a related party under Section 2(76), so dealings with it attract the disclosure and approval rules of Section 188.
• A holding company must include its associates in consolidated financial statements under Section 129(3).
• Loans, guarantees and investments involving the associate fall under the scrutiny of Sections 185 and 186.

Accounting treatment

Investments in an associate company are carried using the equity method under AS 23 or Ind AS 28. The investor recognises its share of the associate's post-acquisition profit or loss and adjusts the investment's carrying value accordingly, rather than accounting only for dividends received.