Associate company: meaning and significant influence test
An associate company is one in which another company has significant influence, meaning at least 20% of voting power, without being a subsidiary.
Short answer
An associate company is a company in which another company has significant influence but which is not its subsidiary. Under section 2(6) of the Companies Act, 2013, significant influence means control of at least 20% of total voting power, or control of or participation in business decisions under an agreement. The term includes a joint venture company.
- Defined in
- Section 2(6), Companies Act 2013
- Threshold
- At least 20% of total voting power
- Includes
- Joint venture companies
- Reporting
- Included in consolidated financial statements
How the associate test works
If Company A holds 25% of the voting shares of Company B and does not control B's board, B is A's associate. Below 20%, a company can still be an associate if an agreement, such as a shareholders' agreement with veto rights over key decisions, gives it a say in business decisions. Above 50%, or with control of the board, the relationship becomes holding and subsidiary instead. Total share capital for this purpose includes equity and convertible preference share capital.
Compliance consequences
An associate is a related party of the investing company under section 2(76), so transactions between them may need approval under section 188 and disclosure in the board's report. The investing company must include associates in its consolidated financial statements, usually by the equity method under the accounting standards, and summarise their financials in Form AOC-1. Loans and investments involving associates are tested against the limits in section 186.
Why it matters for startups
When a corporate investor or strategic partner takes 20% or more of a startup, the startup becomes that investor's associate, and the investor will ask for financial information to prepare its consolidated accounts. Startups that hold minority stakes in other ventures should also check whether those ventures are associates, because that affects related party approvals and disclosures.
Related services
Sources
Written by the Refogo Editorial Team from the official sources above and checked on 2026-10-31. Laws, rates and due dates change, and authorities often extend deadlines, so confirm your own case with a qualified professional. This is general information, not legal or tax advice. Read our editorial policy or report an error to support@refogo.com.
Common questions
Is 20% shareholding always an associate relationship?
Usually yes, if it carries 20% of total voting power, unless the company is a subsidiary because of board control or majority voting power.
What is the difference between an associate and a subsidiary?
A subsidiary is controlled by its holding company. An associate is only significantly influenced, typically through a 20% to 50% stake.
Are associate companies related parties?
Yes. Section 2(76) includes associate companies within the definition of related party.