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What is the definition of Associated Companies and Undertakings?
• Two or more companies are associated if interconnected through:
- Ownership of 20% or more voting power in both entities.
- Common management or control.
- One being a subsidiary of the other.
What are the exceptions for Associated Companies regarding Nominee Directors?
• Directorship due to nomination by:
- A Minister of Federal or Provincial Government.
- A financial institution owned by such Government.
Explain the term ‘Investment’ in the context of a company.
• Includes equity, loans, advances, guarantees.
• Excludes amounts due as normal trade credit on arm’s length terms.
What is required for a company to invest in Associated Companies?
• A special resolution specifying:
- Type of investment.
- Duration of investment.
- Amount to be invested.
- Terms and conditions.
What additional conditions apply to loans or advances to Associated Companies?
• Written agreement including:
- Nature, purpose, and duration.
- Rate of return and repayment schedule.
- Penalty for default and security details.
• Due diligence to ensure borrowing company’s financial health.
What is the requirement regarding the return on investment in Associated Companies?
• Return must be:
- At least the company’s borrowing cost.
- Or rate specified by the Commission, whichever is higher.
• Directors are personally liable for non-compliance.
How must a company maintain records of investments in Associated Companies?
• Maintain a register at the registered office.
• Include specified particulars.
• Make it available for member inspection.
In what cases can investments be held in a name other than the company’s own?
• Holding shares in a subsidiary.
• Qualification shares for directors.
• Shares registered with a central depository.
What is the meaning of ‘Interest of a Director’?
• Personal or financial stake in a transaction.
• Includes interests held by relatives (spouse, children, parents).
When must a director disclose their interest in a company transaction?
• At the first board meeting discussing the transaction.
• Immediately after becoming aware of the interest.
What are the restrictions on directors with an interest in a company transaction?
• Cannot:
- Participate in discussions.
- Vote on the matter.
- Be counted for quorum.
• Must be absent in listed companies.
What is a ‘General Notice of Interest’ for directors?
• Notice stating affiliation with specific businesses.
• Valid until the end of the financial year.
• Can be renewed annually.
What are Related Parties in the context of company law?
• Include:
- Directors and their relatives.
- Key managerial personnel and relatives.
- Firms or companies where they have an interest.
- Holding, subsidiary, or associated companies.
What are the requirements for transactions with Related Parties?
• Must follow board-approved policy unless:
- In the ordinary course of business.
- On arm’s length terms.
• Justification included in directors’ report.
What is meant by ‘Holding Office of Profit’?
• For directors: Receiving additional remuneration such as salary or fees.
• For others: Receiving any kind of remuneration for a position.
What are the penalties for unauthorized Related Party Transactions?
• For listed companies:
- Imprisonment up to 3 years.
- Minimum fine of 5 million rupees.
- Or both.
• For other companies:
- Level 2 penalty.
