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Associate
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The term ‘associate’ has been widely under discussion for a long time now, due to various corporate scam for establishment of inter-corporate group relationships. While the Companies Act 1956 did not prescribe for any definition of the term ‘associate’, the relationship between entities till date may be established either by way of establishment of holding-subsidiary relationship or defining Companies under same management. The new Act now proposes to curb all the shortcomings of previous definition and provide a more rational and objective framework of associate relationship.
Salient Features of the new Act
Under the new Act the term associate company has been defined which provides that an associate company “in relation to another Company, means a Company in which that other Company has a significant influence, but which is not a subsidiary Company of the Company having such influence and includes a Joint Venture Company.
Explanation.—For the purposes of this Section, “significant influence” means control of at least twenty per cent of total share capital, or of business decisions under an agreement;
Definitions Under Old Law
- Under Companies Act, 1956
Though no specific definition is provided under the provisions of law, definition used u/s 370(1B) was used as a base for establishment of such relationship. It states:-
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