Question

Differentiate between “Associated Company” and “Subsidiary/Holding Company” mentioned in Companies Ordinance, 1984. What are the major points to distinguish Private Company from Public Company?

Answer 1

A subsidiary company is a company in which the holding company controls the composition of the board of directors or exercises control over more than one-half of the voting share capital either by itself (direct control) or with one or more of its subsidiary companies (indirect control). On the other hand, an associate is a company in which another company owns and holds a significant part of its voting share capital, generally 20-50%. Consolidated financial statements of the whole group, incorporating the financial statements of all subsidiaries, are prepared by the holding company in case of subsidiary companies but in case of an associate company, the owner does not consolidate the financial statements of the associate.

Major points to distinguish a private company from public company are as follows-

1) A private company restricts the right of transferring shares, if any by its members.

2) There is restriction on the maximum number of members to be 50.

3) There is prohibition for any kind of invitation to the general public for subscription of its shares and payment of any amount to the company in such respect.