Status
Guest
(Querist) 13 May 2011
This query is : Resolved
Dear Experts,
Kindly decide whether following to be called as Sister Concern.
Information :
Company ABC has following four Directors say A, B , C & D. Among Whom B is the MD of the company.
B is the Son of A.
Partnership firm PQR has two partner A & B [of ABC Company]
Now Partner firm wishes to introduce two new Partners and also wishes to get Bank CC loan.
Whereas Company ABC will be supplier of PQR company for the time being.
Queries :
[1] - If Director B [MD of ABC company remains the partner of PQR company, whether ABC and PQR will be considered Sister Concern?
[2] If B discontinues being Partner but father of his A is the partner of PQR, whether ABC and PQR will be considered as Sister Concern?
Pls guide.
Regards,
Rita
Vinjamuri Venkata Rao
(Expert) 14 May 2011
Rita,
First of all we have to Know what is a sister concern, then it is to be applicable for the facts mentioned by you.
sister concern means a firm or a company managed by the same management or with the funds provided by the primary company to the subsidiary company and two or more companies work for the same object with the same funds with same management etc. so also so firms etc.
In the nformation submited by you the particulars about the funds for the company and the firm are not informed. you just narrated about the management and directions etc. whether the company provided any funds for the firm etc. are not mentioned. so it is difficult to decide at this stage. To decide your questions some more information is required. Pl inform me in detaled about the funds etc. or pl contact me directly 09866550610 for further clarifications. ok
V V Rao, Business Law Consultant.
B.Com., B.L.(Andhra University)
P.G.Dip.I.R.& P.M.,(Bhavans University)
P.G.Dip.F.S.&Crl.J.University of Hyderabad.
(Master of Business Law) National Law School of India, Bangalore.
Guest
(Querist) 14 May 2011
Thank You Mr.VV Rao.
Let me be more precise here..
There a running co. say ABC Co. Where we have four Directors A, B, C & D
A is the father of B and B is the MD of the ABC Co.
Now we have another Partnership firm PQR where A and B are partners. PQR is so far not in operations. And we are suppose to introduce one or two new partner in PQR.
Also ABC will be the supplier Co. of PQR firm.
Now if B is the MD of ABC and having 25% or more share in PQR then ABC and PQR will be Sister Concerns.. That is clear..
Now if B discontinue being Partner is PQR and just want to be MD of ABC co. and if A (father of B) wants to be only partner in PQR and want to discontinue from being Director in ABC, will ABC and PQR still be the Sister Concerns?
Asking because A and BB are having Blood relation and ABC co. will be supplier of PQR firm?
Guest
(Querist) 14 May 2011
** Asking because A and BB are having Blood relation and ABC co. will be supplier of PQR firm.
M V Gupta
(Expert) 15 May 2011
There is no legal definition of the expression sister concern. It is an expredssion used in trade parlance to indicate the organic link between two organizations - mostly managerial control and financial and other cooperation. The following meanings are given in the Uk Business Forum- a) Two Companies owned or controlled by the same entitiy or person; b) if they are subsidiaries of the same holding company. In the light of the above,PQR Firm, where Father A and son B are the sole partners, while A and B are also the directors of the ABC company having majority shares, will be regarded as sister concerns. In the second scenerio mentioned by you i.e., A and B snapping their connection with both the entities,but retaining their position only in one of the entities, then the firm cannot be regrded as sister concern of ABC company.
Guest
(Expert) 15 May 2011
Dear Rita,
Blood relationship does not have any significance in deciding the status/relation of the cormpanies, but a sort of common management. In fact sister concern is a misnomer and has not been defined in any law. However, relationship in common management do have significance in establishing relation between different organizations and may be called sister concerns just to indicate relationship as per their management holding.
Section 370 (1B) provides the definition of Same management for different concerns, as follows:
EXTRACT of SEC. 370(1B)
[For the purposes of sub-sections (1) and (1A)] two bodies corporate shall be deemed to be under the same management-
(i) if the managing director or manager of the one body is-
(a) managing director or manager of the other body; or
(b) [***]
(c) [***]
(ii) if a majority of the directors of the one body constitute, or at any time within the six months immediately preceding Constituted, a majority of the directors of the other body; [or]
(iii) if not less than one-third of the total voting power with respect to any matter relating to each of the two bodies corporate is exercised or controlled by the same individual or body corporate; or
(iv) if the holding company of the one body corporate is under the same management as the other body corporate within the meaning of clause (i), clause (ii) or clause (iii); or
(v) if one or more directors of the one body corporate while holding, whether by themselves or together with their relatives, the majority of shares in that body corporate also hold, whether by themselves or together with their relatives, the majority of shares in the other body corporate.]
SO, NOW YOU ACCORDING TO THE ABOVE DEFINITION CAN ESTABLISH RELATIONSHIP OF THE COMPANY AND THE FIRM, WHETHER THEY ARE SISTER CONCERNS OR NOT.
