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Business Entities Notes 2020Lecture: Groups of Companies Part 2
Groups of Companies
Holding company (PARENT)
Subsidiary 1 Subsidiary 2
Subsidiary 3
Group of companies: a group of companies is 2 or more companies that are related or inter-
related
S1, Companies Act
A company is related to another company if:
└ Either company directly or indirectly controls the other, or controls the business of the
other.
└ Either company is a subsidiary of the other
Section 3(1)(a): a company is a subsidiary of another company if that company or its
subsidiaries (alone or in combination);
(i) Is able to exercise, or control the exercise of, a majority (51%) of the general
voting rights in the company, or
(ii) Has the right to appoint or elect, or control the appointment or election of
directors of that company who control a majority (51%) of votes at board
meetings.
Control is determining factor in all of these. The control allows the groups to be managed as a
single business entity.
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, Business Entities Notes 2020
Lecture: Groups of Companies Part 2
Section 2(2) (a), Companies Act: P controls S or its business if:
(a) S is a subsidiary of P
(b) P together with any related or inter-related person is:
o Directly or indirectly able to exercise or control the exercise of a
majority of the voting rights associated with the securities of S (51%),
o P has the right to appoint, elect, or control the appointment or election
of, directors of S who control a majority of the votes at a meeting of the
board.
Why should we regulate company groupings?
I. To account for the stake of the holding company in the issued share capital of the
subsidiary.
II. To regulate transactions between the holding company and subsidiary (and ensure
there isn’t any abuse).
III. Trying to avoid monopolies.
IV. Regulate and understand whether subsidiaries are independent entities or are
instruments of holding company.
Pro’s of groups of companies:
(1) Diversification
(2) Risk aspect
(3) Centralize control of previously independent entities
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