- The Companies Act separates influence from control through specific voting power thresholds and board rights.
- A holding of at least twenty percent typically establishes an associate company relationship through significant influence.
- Subsidiary status requires more than fifty percent voting power or control over board composition.
The Companies Act, 2013 separates influence from control through voting power, board rights and contractual arrangements. A holding of at least 20% may create significant influence, while more than half the votes or control over the board may create a subsidiary relationship.
The percentages do not answer every case. A 25% investor may influence a company without controlling it, while a 60% investor will ordinarily control its voting power.
Exactly 50% sits between those markers. It is not more than one-half, although separate board-appointment or contractual rights may still establish control.
The documents matter as much as the cap table. Articles of association and shareholders’ agreements can change how the relationship operates.
Section 2(6) connects 20% voting power with influence
Section 2(6) defines an associate company as an entity over which another company has significant influence, but which is not its subsidiary. The provision identifies control of at least 20% of total voting power as one route to that influence.
An agreement can provide another route. Control of, or participation in, business decisions may support an influence finding even when the shareholding percentage is below 20%.
The distinction appears in a simple example. A Ltd. controls 30% of B Ltd.’s voting power but does not control B Ltd.’s board or exercise subsidiary-level authority. B Ltd. may qualify as an associate of A Ltd.
A 25% investment in Company X may produce the same result if the statutory test is met. A straightforward 10% holding may remain an ordinary minority investment.
The percentage is therefore a marker, not a complete conclusion. Rights over budgets, borrowing, acquisitions, asset disposals and other strategic decisions may affect the analysis.
Section 2(87) uses control as the subsidiary test
Section 2(87) describes a subsidiary through board control or voting control. A holding company may control the composition of the board, or exercise or control more than one-half of total voting power, directly or together with one or more subsidiaries.
A 60% voting position would ordinarily place B Ltd. in subsidiary territory when no unusual rights alter the analysis. An investor holding 65% of Company Y’s voting power would generally fall within the same category.
Board control can produce the same relationship without a simple majority holding. Section 2(27) refers to the right to appoint a majority of directors and to control management or policy decisions, individually or together with other persons.
That route makes governance documents important. A shareholder may hold less than a majority of shares yet possess rights that determine who runs the board or how policy decisions are made.
Shared control does not require equal ownership
A joint venture appears within the associate definition as a joint arrangement in which parties with joint control have rights to the net assets of the arrangement.
A familiar structure gives an Indian company and a foreign company 50% each in a third company. If major decisions require both parties’ agreement, neither can act alone on those matters.
Equal ownership is not mandatory. One party may hold 60% and another 40%, while the governing agreement requires both to approve identified strategic decisions.
The rights determine the result. A 50:50 split may illustrate shared control, but it does not establish it automatically if one participant can make relevant decisions alone.
One percentage can produce different legal relationships
The following comparison is a simplified guide. Actual voting arrangements, board powers and agreements must still be reviewed.
| Relationship | General indicator | Basic idea |
|---|---|---|
| Ordinary minority investment | Below the significant-influence level in a straightforward case | Investment without sufficient influence or control |
| Associate | At least 20% voting power or qualifying influence under an agreement | Significant influence without subsidiary control |
| Jointly controlled arrangement | Joint control under the arrangement | Important decisions are shared |
| Subsidiary | More than half of voting power or board control | Control |
| Wholly owned subsidiary | Entire ownership, subject to permitted nominee arrangements | Complete parent ownership |
Exactly 50% does not satisfy the voting-power route in Section 2(87), which uses the words “more than one-half.” The same shareholder may nevertheless control the company through a right to appoint a majority of directors or through contractual provisions.
The shorthand “50% = not subsidiary” is therefore incomplete. The voting percentage answers only one part of the control question.
A foreign investment can cross different thresholds at different stages
Consider Singapore Investor Pte. Ltd. investing in an Indian technology company. A 10% stake may remain a minority investment. A 25% stake may move into associate territory if the significant-influence test is met, while a 60% voting position would ordinarily create a subsidiary relationship.
An agreement with an Indian promoter could instead produce a jointly controlled arrangement, depending on the rights it creates. The ownership percentage alone would not resolve that issue.
The same review applies to transactions involving founders, non-resident Indians and other foreign investors. The parties should examine director appointments, voting arrangements and reserved matters before describing the target entity.
Reserved matters may cover budgets, borrowings, acquisitions, disposals of assets and other strategic decisions. Those provisions may give one investor influence or require two parties to act together.
Group reporting and foreign-investment rules use separate tests
Section 129(3) addresses consolidated financial statements for a company with at least one subsidiary or associate. That reporting obligation may arise as founders prepare for an initial public offering or seek venture debt.
A separate proposal, the Foreign Exchange Management (Foreign Investment) Rules, 2026, would classify an investment of 10% or more in an unlisted Indian company as foreign direct investment. That proposed threshold is different from the 20% marker used for significant influence under Section 2(6).
The proposal also describes a Foreign Controlled Entity as one owned above 50% or controlled through the power to appoint a majority of directors. Investors from countries sharing a land border with India may face Press Note 3 scrutiny under that framework.
Tax questions can arise alongside corporate classification. Place of Effective Management may become relevant where a foreign parent exercises control over an Indian subsidiary’s daily policy decisions and the foreign company’s effective management is considered to be in India.
These tests should not be combined casually. A stake can cross a foreign-investment threshold without creating influence under company law, while contractual rights can create influence or control without matching a simple percentage label.
The legal review starts with the rights attached to the shares
The broad markers remain useful. 20% is an important statutory route to significant influence, and more than 50% voting control is an important route to subsidiary status.
Shared control follows a different logic. It depends on whether the arrangement requires multiple parties to approve relevant decisions and gives them rights to the arrangement’s net assets.
A final classification should connect voting power, board rights and contractual arrangements. Legal and accounting review may be needed where the transaction involves foreign ownership, consolidated reporting, tax residence or financial-sector restrictions.
This article provides general information and is not legal advice. Consult a qualified immigration attorney about your specific case.
