I am sure you must have heard the words “subsidiaries” and “holding companies”. Today you find out what they really mean.

Section 381 of the Companies and Allied Matters Act* describes a subsidiary to be a company who:

a) Has another company as its member that controls the composition of its board of directors, and

b) That company holds more than 50% in nominal value of its equity share capital.

Two things are paramount; control and ownership of more than 50% of the equity shares. The company that possess both the control and owns the shares is called a holding company.

In some cases, ownership of over 50% of the nominal shares may not in themselves give control, hence (a) as well.

The companies will usually prepare group financial statements at the end of the financial year except:

(a) it is impracticable, or would be of no real value to the members, in view of the insignificant amounts involved;

(b) it would involve expense or delay out of proportion to its value to members of the company;

(c) the result would be misleading, or harmful to the business of the company or any of its subsidiaries; or

(d) the business of the holding company and that of the subsidiary are so different that they cannot reasonably be treated as a single undertaking

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