Holding Company

A holding company is a company that controls one or more other companies — its subsidiaries — either by owning more than half of their voting power or by controlling the composition of their board of directors. Under Section 2(46) of the Companies Act, 2013 it is defined simply as a company of which the others are subsidiaries. A holding company may be pure, holding only investments in group companies, or an operating holding company that also runs its own business.

Legal basis

The relationship turns on Section 2(87), which defines a subsidiary as a company whose board composition the holding company controls, or in which it controls more than one-half of the total voting power. The Companies (Amendment) Act, 2017 replaced the earlier "total share capital" test with "total voting power". Control is separately defined in Section 2(27) to include the right to appoint a majority of directors or to direct management and policy decisions.

Key rules and restrictions

• Layer limit: the Companies (Restriction on Number of Layers) Rules, 2017 bar most companies from holding more than two layers of subsidiaries, with carve-outs for banking, NBFC, insurance and government companies and certain foreign acquisitions.
• No cross-holding: Section 19 makes it void for a subsidiary to hold shares in its own holding company, subject to narrow exceptions.
• Consolidated accounts: Section 129(3) requires the holding company to prepare consolidated financial statements covering its subsidiaries, associates and joint ventures.

Wholly-owned subsidiary

Where a holding company owns 100% of a subsidiary's shares, the subsidiary is a wholly-owned subsidiary (WOS), and that single WOS layer is not counted towards the two-layer limit.