Associate Company

INTRODUCTION

The expression “Associate” has been generally under dialog for quite a while now, because of different corporate scams for foundation of between corporate relationships.[1] The Act now proposes to control every one of the weaknesses identifying with associate company and give a more judicious and target objective framework of associate relationship.[2]

In this Article, an attempt has been made to intensify the extension and relevance of section according to the Companies Act, 2013 and standards and arrangements made there under identifying with “Associate Company”.[3]

DEFINITION: COMPANIES ACT, 1956     

In the Companies Act, 1956 there is no endorsed definition identifying with term Associate’. The relationship between the companies till date is built up either by method for holding or subsidiary.[4]

COMPANIES ACT, 2013          

The provisions mentioned under Sub-section 6 of Section 2 of the Companies Act, 2013 and the Rule 2 of Companies (Specification of definitions points of interest) Rules, 2014 made there under characterizes ” Associate Company ” as in connection to another company, implies an company in which that other company has a Significant influence, yet which is not an subsidiary company of the company having such impact and incorporates a Joint Venture Company.[5]

EXPLANATION

HUGE INFLUENCE

Following two conditions should be satisfied:

  1. Control of no less than 20% of total share capital yet under half of share capital by another company;
  2. Control of business choices under an agreement.[6]

EXPLANATION TO CONDITION NO.1

The definition of control has been mentioned under rule 2 of Companies Rule 2014 and Sub-section 27 of Section 2 of Companies Act, 2013. It includes:-

  • Appoint majority of Directors
  • Policy decisions need to be exercisable by a person
  • Right to control the management
  • Person acting individually or in concert, directly or indirectly, including virtue of shareholding or voting agreements in any other manner.

EXPLANATION TO CONDITION NO. 2:           

This expression has made huge problem among corporate and practicing experts ““Control of business decisions under an agreement”.[7] It is fundamental to note here, that if this condition is fulfilled then a company will be a associate company’, regardless of the possibility that there is no control of even 20% of total share capital. The proviso is appropriate notwithstanding when the control of business choice is under oral agreement or a written agreement.

JOINT VENTURE COMPANY: 

A business undertaking by at least two people occupied with a single defined project. The essential components are:

  1. An express or inferred understanding
  2. Shared benefits and misfortunes
  3. A typical reason that the gathering means to complete
  4. Each part’s equivalent voice in controlling the venture.

It is a harmonious business union between at least two organizations whereby the complimentary assets of the accomplices are commonly shared and put to utilize.

 

IMPACT OF ANALYSIS OF DEFINITION: 
“A Ltd. is an associate company of B Ltd. If: (i) B Ltd. has significant influence in A Ltd; and B Ltd. Is not a holding company of A Ltd. Or (ii) A Ltd and B Ltd. are joint venture companies.”[8]

 

CORRESPONDENCE WITH OTHER SECTIONS OF COMPANIES ACT, 2013: 

Section 129 deals with Consolidated Financial Statement (CFS) shall include associate Company financial also. Section 149(6) deals with the persons who cannot become an Independent             director.

  • Who is a promoter or related to promoters or directors of an Associate Company.
  • Who neither himself nor any of his relative held the position of key managerial personnel or has been employee of an Associate Company. • Who has/had or any of his relatives has or had pecuniary relationship with Associate Company

Section 2(76) deals with the Related Party.  

CONCLUSION

With an expectation to control the shortcomings and give a more reasonable and target framework of associate relationship it wanted to present the meaning of Associate Company in the Companies Act, 2013. Relate Company needs to take after the different laws as well as the Accounting Standards identifying with it. A Company having an Associate Company then the Company needs to plan solidified budgetary proclamation and take after Accounting Standard 23 so as to stay with the Accounting Standards. In the event that anybody scanning in the Companies Act for Joint Ventures then they have investigate Section 2(6) identifying with Associate Company since the definition incorporates joint wander. In this way, one needs to take a gander at Associate Company thoroughly thinking about all the empowering arrangements, acts and guidelines identifying with it.


BIBLIOGRAPHY:

http://www.icsi.edu/portals/32/Interpretation%20of%20Definitions.pdf

https://www.google.co.in/search?q=Associate+company https://www.icsi.edu/WebModules/LinksOfWeeks/ICSI%20Dec2014.pdf http://dipp.nic.in/English/Investor/Ease_DoingBusiness/PHD-2_31August2015.pdf http://supremecourtofindia.nic.in/scr/2011_v13_pii.pdf

http://nrsadvisors.com/new-concepts-introduced-in-companies-act-2013/

http://frc.org.uk/Our-Work/Publications/ASB/FRS-9-Associates-and-Joint-Ventures-File.pd 


References:

[1] An overview on associate company, http://www.citationmachine.net/bluebook-law-review/cite-a-website/manual (last visited Jun 28, 2017).

[2] THE COMPANIES (AMENDMENT) BILL, 2016 — AN OVERVIEW, , http://www.companiesact.in/pdf/Companies_Amendment_Bill_2016-%20An_Overview.pdf (last visited Jun 28, 2017).

[3] An overview of Producer Companies, , http://www.rna-cs.com/an-overview-of-producer-companies/ (last visited Jun 28, 2017).

[4] CS Ashish Pratihast, Consolidated Financial Statements – An Overview, http://taxguru.in/company-law/consolidated-financial-statements-overview.html (last visited Jun 28, 2017).

[5] India Inc – Companies Act 2013, , http://www.ey.com/Publication/vwLUAssets/India_Inc_Companies_Act_2013/$File/India_Inc_Companies_Act_2013.pdf (last visited Jun 28, 2017).

[6] THE COMPANIES (AMENDMENT) BILL, 2016 — AN OVERVIEW, , http://www.companiesact.in/pdf/Companies_Amendment_Bill_2016-%20An_Overview.pdf (last visited Jun 28, 2017).

[7] THE COMPANIES (AMENDMENT) BILL, 2016 — AN OVERVIEW, , http://www.companiesact.in/pdf/Companies_Amendment_Bill_2016-%20An_Overview.pdf (last visited Jun 28, 2017).

[8] India Inc – Companies Act 2013, , http://www.ey.com/Publication/vwLUAssets/India_Inc_Companies_Act_2013/$File/India_Inc_Companies_Act_2013.pdf (last visited Jun 28, 2017).

 

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