SUBSIDIARY COMPANIES (1AS 27)
A subsidiary company is a company in which the investing company (also called holding or parent company) controls the financial and operating policies of the subsidiary company.
In most cases, control is evidenced (but not limited) to owning more than 50% of the ordinary share capital of the subsidiary company. Control may also be exercised in the following ways;
- The holding company owing more than 50% or the voting rights in the company or subsidiary company.
- The holding company being able to appoint majority of the directors in the board of directors.
- The holding company carrying out favourable transactions with the subsidiary e.g. sale and purchase of goods at a price below the market value.
The substance of the relationship between holding company and subsidiary company is the effectively, the holding company controlls the subsidiary company. This means that the holding company controll the assets of the subsidiary company and is liable to the debts of the subsidiary company.