Question

In the following independent situations, discuss and determine whether a parent–subsidiary relationship exists, and which entity, if any, is a parent. You must fully explain and support your answer. This includes identifying and discussing each of the important facts or considerations in each case.

1.Bernadette Ltd and Howard Ltd each hold 50% of the shares in Jerry Ltd, all companies being involved in the computer software industry. Bernadette Ltd agrees that Howard Ltd should provide the management of Jerry Ltd because of the expertise provided by its managing director, Barry Kripke. Howard Ltd receives a management fee for providing its expertise.
2. Amy Ltd holds 30% of the shares issued by Sheldon Ltd. The other shareholders come from mixed backgrounds, but each holds on average 10% of shares in Sheldon Ltd. Only three of the other shareholders have an interest in the management of the company. There are seven directors of Sheldon Ltd. Four of these are appointed by Amy Ltd. The other three directors are appointed by the three other shareholders who have an interest in the management of the company. Most of the remaining shareholders live outside Australia and rarely attend general meetings of Sheldon Ltd unless they have other business to attend to in the country around the same time as the general meetings are held.

3.    Oliver Ltd and Felicity Ltd decide to establish a new entity, Arrow Ltd. The purpose of Arrow Ltd is to develop and market a new car seat designed for use by babies when travelling in a car. Oliver Ltd and Felicity Ltd have specific roles in the new company and have unilateral ability to make all decisions in relation to their specified roles. Oliver Ltd has agreed that it will be responsible for developing the new car seat and obtaining all the approvals from the relevant safety bodies in Australia. Once the seat has been designed and all safety approvals have been received, Felicity Ltd will manufacture and market the product.   

Answer 1

When one company controls another, this is known as a parent company subsidiary relationship. Typically, a parent company is created when a company purchases a controlling amount of voting stock in another company. Usually, a parent company is a large company that owns a smaller company. The subsidiary company can be in the same industry as the parent company or can be in a related industry. A parent company may own a variety of small subsidiary companies.

The parent company–subsidiary company relationship is defined by Part 1.2, Division 6, Section 46 of the Corporations Act 2001 (Cth), which states:[1]

A body corporate (in this section called the first body) is a subsidiary of another body corporate if, and only if:

(a) the other body:

(i) controls the composition of the first body's board; or

(ii) is in a position to cast, or control the casting of, more than one-half of the maximum number of votes that might be cast at a general meeting of the first body; or

(iii) holds more than one-half of the issued share capital of the first body (excluding any part of that issued share capital that carries no right to participate beyond a specified amount in a distribution of either profits or capital); or

(b) the first body is a subsidiary of a subsidiary of the other body.

1. Howrad Ltd is a parent company since it manages the management of the company.

2. Amy Ltd is a parent company of sheldon, since it controls majority board of directors.

A joint venture is where businesses, investors or individuals enter into an agreement to exploit a business opportunity with the aim of profit. Even though parties enter into a joint venture together, the individual parties bring their own assets and finances.  

3.Arrow ltd is a joint venture of oliver lts & felicity ltd