When can a company can be considered as subsidiary?

Answer 1

Manojb replied: If company 'a' holds 100% in company 'b'.then company 'b' is subsidary of 'a'. This is however only part of the answer. It is important to distinguish between the mathematical proportion of the shares held and the actual control that one company has over another.
A subsidiary is presumed to exist in all circumstances where one company directly or indirectly (through other company(s)) controls another by holding a majority of the shares of the other - ie 1 share more than 50% (careful note this is not the same as 51%!) .
Control can also be exerted and a subsidiary relationship exist where one company directly or indirectly owns less than 50% of the shares if:

• over more than half of the voting rights are held because of an agreement with other investors;

• there is an ability to govern the financial and operating policies of the entity by law or by agreement;

• there is an ability to appoint or remove the majority of the members of the board of directors and control of the entity is by that board;

• the ability to cast the majority of votes at a meeting of the board of directors and control is exercised by that board.

These provisions are included in certain national laws (esp in the UK) and are most importantly found in International Accounting Standard (IAS) 27.