Related to Status of a company

According to Section 3(1) (iv) (c), “Public Company” means a company which-“is a private company which is a subsidiary of a company which is not a private company.” Thus, a private company, which is a subsidiary of a public company, is placed on the same footing as that of a public company for the purposes of the provisions of the Companies Act. Such a status of a public company is bestowed on a private company which was initially incorporated as a private company. So, “a private company which is subsidiary of a public company is also a public company”.

But even when such a status of a public company is bestowed on a private subsidiary, even then the basic structure of such a subsidiary remains the same, hence it is neither required to increase the number of members to seven from two, as in case of private company; nor it is required to alter conditions included in articles of association so as to meet requirements under Section 3 (1)(iii). In the case of Hillcrest Realty Sdn. Bhd. v Hotel Queen Road Pvt. Ltd. and Ors., it was opined that

the basic characteristics of a private company in terms of Section 3(iii) of the Act do not get altered just because it is a subsidiary of a public company in view of the fiction in terms of Section 3(3)(iv)(c) of the Act that it is a public company. May be it is a public company in relation to other provisions of the Act but not with reference to its basic characteristics.

So, majorly besides the concept of basic structure, for all other purposes under the Act, the private subsidiary will be treated as a public company, even when the status remains that such private turned public company or subsidiary, remains a private company in its core and does not become a public company; whereas under Section 44, a public company gets converted to a private company upon voluntary conversion. Besides this, there remains yet another side of the coin, that certain Sections in the Act expressly provides specifically ‘or a private company which is a subsidiary of a public company,’ so, by implication it means that “all sections that apply to public companies may not apply to their subsidiary private companies ipso facto.”