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Corporate Accounting and Financial Management · Consolidation of Accounts

Holding and Subsidiary Companies: Meaning, Control and Purpose

Updated 11 October 2026 · Fact-checked

A company is a subsidiary if another company, its holding company, controls its board or holds more than half of its total voting power, alone or with its own subsidiaries (Section 2(87)). To answer questions, test board control and voting power, then explain that consolidated statements show the group as one economic entity.

Understand Holding and Subsidiary Companies: Basic Concepts

A holding company is a company that controls one or more other companies. The companies it controls are its subsidiary companies. Section 2(46) defines a holding company in relation to other companies as a company of which those companies are subsidiaries. So the two terms are two sides of one relationship.

The test for a subsidiary is in Section 2(87). A company is a subsidiary of another company if that other company (a) controls the composition of its Board of Directors, or (b) exercises or controls more than one-half of its total voting power, either on its own or together with one or more of its subsidiary companies. Either limb is enough. Holding more than 50% of the equity is not the only route.

Control of the board means the power to appoint or remove all or a majority of the directors. Under AS 21, an enterprise is deemed to have that power if a person cannot be appointed director without its favour, if a director's appointment follows necessarily from a position he holds in that enterprise, or if the director is nominated by that enterprise or its subsidiary. Under AS 21, control means owning more than one-half of the voting power (directly or through subsidiaries), or controlling the board so as to obtain economic benefits from its activities. Ind AS 110 uses a wider idea of control based on power over the investee and exposure to its variable returns. Know both, and use the one the question names.

Control can run through layers. If H controls S, and S controls T, then T is also a subsidiary of H, because voting power held through a subsidiary counts together with H's own. A company can also be a subsidiary even when the holding company's own direct holding is small, if holdings add up to more than half through its subsidiaries.

Why consolidate? Legally separate companies in a group act as one business. The parent's own balance sheet shows only its investment in the subsidiary, not what the subsidiary owns and owes. Consolidated financial statements present the assets, liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries as those of a single economic entity (Ind AS 110, Appendix A). Section 129(3) of the Companies Act requires a company with subsidiaries to prepare consolidated statements as well, in addition to its own.

Key rules to remember

Subsidiary company (Section 2(87))
Subsidiary if holding company (a) controls composition of the Board, OR (b) controls more than 50% of total voting power, alone or with its subsidiaries
Either limb is enough. The test is 'more than one-half', so exactly 50% does not qualify under the voting limb.
Holding company (Section 2(46))
Holding company = a company of which the other company or companies are subsidiaries
Holding and subsidiary status is always relative to a pair of companies.
Control under AS 21
Control = ownership of more than 1/2 of voting power (directly or through subsidiaries) OR control of board composition to obtain economic benefits
Trusts such as gratuity or provident fund trusts are not consolidated, as the aim is not to obtain economic benefits from them.
Meaning of consolidated financial statements
Group assets, liabilities, equity, income, expenses and cash flows presented as those of a single economic entity
Ind AS 110, Appendix A. AS 21 says financial statements of a group presented as those of a single enterprise.
Consolidation procedures (Ind AS 110, B86)
Combine like items; eliminate parent's investment against parent's share of subsidiary equity; eliminate intragroup balances, transactions, income and expenses in full
Profits or losses on intragroup transactions that sit in assets such as inventory or fixed assets are eliminated in full.
Same reporting date (Ind AS 110, B92-B93)
Same reporting date for parent and subsidiary; if impracticable, gap must be no more than three months
Adjust for significant transactions in the gap. Period lengths and the gap must be the same from period to period.
Exemption from consolidating (Ind AS 110, para 4(a))
Parent need not consolidate only if ALL four conditions are met
(i) owners informed and do not object, (ii) not publicly traded, (iii) not filing for public issue, (iv) ultimate or intermediate parent publishes Ind AS statements for public use.

How to solve Holding and Subsidiary Companies: Basic Concepts questions

Use this method for any theory or case question on holding and subsidiary companies.

  1. 1Identify the two companies and say which one you are testing as the possible holding company.
  2. 2Test the board limb: does the holding company have the power to appoint or remove all or a majority of directors, without anyone's consent?
  3. 3Test the voting limb: add the holding company's own voting power and the voting power held by its subsidiaries. Is the total more than 50%?
  4. 4Check for layers. If H controls S and S controls T, conclude T is a subsidiary of H as well.
  5. 5State the conclusion in the right terms: X is a subsidiary of Y, and Y is the holding company of X. Cite Section 2(87) and Section 2(46).
  6. 6If the question asks about consolidation, state that Section 129(3) requires it, name the standard (AS 21 or Ind AS 110 as asked), and check any exemption conditions one by one.
  7. 7Close with the purpose: the group is shown as a single economic entity, and intragroup items are eliminated.

Quickest way: Two-limb check and one-line conclusion

When to use it: Use for short questions and case facts where you must decide quickly whether a company is a subsidiary.

  1. Write 'Section 2(87): board control OR more than 50% voting power (own plus through subsidiaries)'.
  2. Tick the limb that the facts satisfy. Add up percentages only for voting shares held by the holding company and its subsidiaries.
  3. Write the conclusion in one sentence naming holding company and subsidiary.
  4. Add one line on purpose: consolidated statements show the group as one economic entity.

Common mistakes in Holding and Subsidiary Companies: Basic Concepts

  • Saying a company is a subsidiary only when the holding company owns more than 50% of shares directly.

    Students remember the voting limb and forget the board-control limb and the 'together with subsidiaries' wording.

    Fix: Always test both limbs of Section 2(87) and add holdings through subsidiaries.

  • Treating exactly 50% as control under the voting limb.

    Students read 'half' loosely.

    Fix: The test is more than one-half. Exactly 50% does not satisfy the voting limb. Check whether the board limb applies instead.

  • Missing indirect subsidiaries in chain structures.

    Students look only at the holding company's direct investments.

    Fix: If H controls S and S controls T, T is also H's subsidiary. Draw a quick chain diagram before answering.

  • Writing that consolidated statements simply add up the parent's and subsidiary's figures.

    Students forget the elimination step.

    Fix: State that the parent's investment is offset against its share of subsidiary equity, and intragroup balances, transactions and unrealised profits are eliminated in full.

  • Claiming a parent can skip consolidation if it satisfies one or two exemption conditions.

    Students recall only the unlisted condition.

    Fix: Ind AS 110 para 4(a) requires all four conditions to be met together.

  • Mixing Ind AS and AS 21 definitions of control in one answer.

    Both standards are studied together and the wording looks similar.

    Fix: Use AS 21 control (voting power or board composition) when the question names AS 21, and power over the investee with exposure to variable returns for Ind AS 110.

Worked examples

Example 1

Alpha Ltd holds 60% of the voting power of Beta Ltd. Beta Ltd holds 55% of the voting power of Gamma Ltd. Alpha Ltd holds no shares directly in Gamma Ltd. State the relationship among the three companies under the Companies Act, 2013.

Show the solution
  1. Provision: Under Section 2(87), a company is a subsidiary of another if the other controls its board, or exercises or controls more than one-half of its total voting power, alone or together with its subsidiaries.
  2. Alpha and Beta: Alpha holds 60%, which is more than one-half. So Beta is a subsidiary of Alpha and Alpha is the holding company of Beta.
  3. Beta and Gamma: Beta holds 55%, which is more than one-half. So Gamma is a subsidiary of Beta.
  4. Alpha and Gamma: Gamma is controlled through Beta, which is Alpha's subsidiary. Voting power held through a subsidiary counts for the holding company, so Gamma is also a subsidiary of Alpha.

Answer: Beta is a subsidiary of Alpha, Gamma is a subsidiary of Beta, and Gamma is also a subsidiary of Alpha through Beta. Alpha is the holding company of both, and Beta is both a subsidiary and a holding company.

Example 2

Ravi Ltd is a wholly-owned subsidiary of Surya Ltd. Ravi Ltd has a subsidiary, Tara Ltd. Ravi Ltd's shares are not traded in any public market and it is not filing, or in the process of filing, its financial statements for issuing any instruments in a public market. Surya Ltd publishes Ind AS financial statements for public use in which subsidiaries are consolidated. Must Ravi Ltd present consolidated financial statements? Explain.

Show the solution
  1. Rule: Under Ind AS 110, para 4, a parent must present consolidated financial statements. Ravi Ltd is a parent because it controls Tara Ltd.
  2. Exemption: Para 4(a) allows a parent to skip them only if all four conditions are met.
  3. Condition (i): Ravi is wholly-owned, so there are no other owners who could object. Met.
  4. Condition (ii): Its debt or equity instruments are not traded in a public market. Met.
  5. Condition (iii): It is not filing, nor in the process of filing, for issuing instruments in a public market. Met.
  6. Condition (iv): Its ultimate parent, Surya Ltd, produces Ind AS financial statements for public use in which subsidiaries are consolidated. Met.
  7. Conclusion: All four conditions are satisfied.

Answer: Ravi Ltd need not present consolidated financial statements, because it meets all four conditions of Ind AS 110, para 4(a). If any one condition failed, it would have to consolidate Tara Ltd.

Exam tips

  • For definition questions, quote the two limbs of Section 2(87) in your own words and cite the section. This earns the provision marks first.
  • In chain-holding facts, draw a small diagram and state the indirect subsidiary conclusion clearly.
  • For 'why prepare consolidated statements', give three points: single economic entity view, true picture of group assets and liabilities, and a legal requirement under Section 129(3).
  • For exemption questions, list each of the four conditions and tick them against the facts before concluding.
  • Keep the answer in ICSI style: provision, application to facts, then a one-line conclusion.

Practice questions from Consolidation of Accounts

Holding and Subsidiary Companies: Basic Concepts in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Holding and Subsidiary Companies: Basic Concepts: frequently asked questions

What is the difference between a holding company and a subsidiary company?

A holding company controls another company. The controlled company is its subsidiary. Control means power over the board or more than half of the total voting power, as in Section 2(87). A company can be both, if it controls one company and is itself controlled by another.

Does owning exactly 50% make a company a subsidiary?

Not under the voting limb, because the test is more than one-half of total voting power. But the company may still be a subsidiary under the board limb if the holder controls the composition of the board. Always check both limbs.

Why are consolidated financial statements prepared?

A parent's own statements show only its investment in subsidiaries. Consolidated statements present the parent and subsidiaries as a single economic entity, so users see the group's total assets, liabilities, income and cash flows. Section 129(3) of the Companies Act also requires them for companies with subsidiaries.

Is the control test the same in AS 21 and Ind AS 110?

No. AS 21 defines control by more than half of voting power or control of the board to obtain economic benefits. Ind AS 110 uses a broader power-based idea of control, linked to exposure to variable returns from the investee. Follow the standard named in the question.

What if the subsidiary has a different year-end from the parent?

Ind AS 110 requires the same reporting date. The subsidiary prepares additional information as at the parent's date unless impracticable. If impracticable, the gap must be no more than three months, with adjustments for significant transactions in the gap.