Holding company: meaning under the Companies Act
A holding company controls another company by controlling its board or holding over half its total voting power, under section 2(46) of the Companies Act.
Short answer
A holding company is a company that controls another company, its subsidiary. Under sections 2(46) and 2(87) of the Companies Act, 2013, control exists when a company controls the composition of the other company's board of directors, or exercises or controls more than one-half of its total voting power, alone or together with its other subsidiaries.
- Defined in
- Section 2(46), Companies Act 2013
- Control test
- Board composition, or more than 50% of total voting power
- Layers
- Generally up to two layers of subsidiaries
- Consolidation
- Consolidated financial statements under section 129(3)
How a holding structure works
If Company A holds 60% of the voting shares of Company B, A is B's holding company. If B in turn controls Company C, A is also C's holding company, because control passes through the subsidiary. A holding company can be an operating company or a pure investment company, and it can be Indian or foreign.
The Companies (Restriction on Number of Layers) Rules, 2017 generally limit a company to two layers of subsidiaries, with some exceptions such as banking and insurance companies and certain foreign subsidiaries.
Compliance for holding companies
A holding company must prepare consolidated financial statements covering its subsidiaries, associates and joint ventures, and attach a statement of their key financials in Form AOC-1. It is excluded from small company status, even if its own figures are within the limits. Loans, guarantees and investments involving subsidiaries also have special treatment under sections 185 and 186.
Why it matters for startups
Founders sometimes set up a holding company to hold their shares or to group several businesses together. Before doing so, consider the loss of small company relaxations, consolidated reporting, and tax effects on dividends and future share sales. Foreign holding companies investing in India also bring FDI reporting obligations for the Indian company.
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
What percentage makes a company a holding company?
Controlling more than one-half of total voting power, or controlling the composition of the board, makes it a holding company.
Is a holding company the same as a parent company?
Yes, the terms are used interchangeably. The Companies Act uses holding company.
Can an LLP be a holding company under the Companies Act?
The definition refers to companies, so an LLP holding shares is not a holding company under the Act, though it may still be a related party.