Question

In the following situation, 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.

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.

Answer 1

Bernadette Ltd and Howard Ltd each holds 50% shares in Jerry Ltd. As per the provisions, a company holding equal to or more than 50 % shares in another company becomes holding company of that other company and has authority to make and influence the management decisions as well as influence the board of directors . For eg Company A holding equal to or more than 50% shares in Company B . Here Company A will be Holding company and Company B will become subsidiary company.

Accordingly Bernadette Ltd & Howard Ltd each holding 50% shares in Jerry ltd makes Jerry Ltd subsidiary of both Bernadetted & Howard Ltd. Bernadette Ltd & Howard Ltd becomes Holding companies of Jerry Ltd. A holding company is one which owns a controlling share of stock and assets of other company.