Question

Which of the following statements are correct?
Associate company, in relation to another company, means a company in which that other company has a significant influence. The expression “significant influence” in this context means: -
(i) Control of business decisions under an agreement.
(ii) Control of at least twenty-five per cent of total voting power.
(iii) Participation in business decisions under an agreement.
(iv) Control of at least twenty per cent of total voting power.

• A. Only (i), (ii), and (iii)
• B. Only (ii), (iii), and (iv)
• C. Only (i), (ii), and (iv)
• D. Only (i), (iii), and (iv)

Hint:

An Associate Company is different from a Joint Venture.
The threshold for significant influence is 20% of the voting power.
Always verify if the question mentions 20% or 25% to avoid common traps.

Answer 1

The Correct Option is D

Step 1: Understanding the Question:
The question asks for the statutory definition of "significant influence" used to define an "Associate Company" under Section 2(6) of the Companies Act, 2013.

Step 2: Detailed Explanation:

• Section 2(6) of the Companies Act, 2013: This section defines an "Associate Company" as a company in which another company has a significant influence, but which is not a subsidiary company.

• Definition of Significant Influence: The explanation to Section 2(6) states:
"significant influence" means control of at least twenty per cent of total voting power, or control of or participation in business decisions under an agreement.

• Analyzing the Statements:
(i) Control of business decisions under an agreement: This is correct as per the statutory definition.
(ii) Control of at least twenty-five per cent of total voting power: This is incorrect, as the threshold is 20%, not 25%.
(iii) Participation in business decisions under an agreement: This is correct as per the definition.
(iv) Control of at least twenty per cent of total voting power: This is correct.

Step 3: Final Answer:
Statements (i), (iii), and (iv) are correct, which corresponds to Option D.