UNDERSTANDING HOLDING COMPANIES
In our day to day dealings and business transactions, we may tend to come across these terms “holding company and subsidiary company” in this article we shall enlighten on “holding company” by various definitions and meanings and features, operations and management as provided for under the Rwandan company law.
What is a holding company?
A holding company is a parent company of another company, it can either be a private or public company that is created to buy and control the ownership interests of other companies. The companies that are owned or controlled by the holding company are called “subsidiaries” of the holding company.
Common examples of holding companies are conglomerates owning companies in multiple industries offering different products and services under one umbrella. For instance, BK Group of Companies holding subsidiaries like, Bank of Kigali, BK General Insurance, BK Tec House and BK Capital Ltd.
Under the Rwandan company laws, a “Holding company” happens when a company is another company’s holding company if that other is its subsidiary (Article 15 of Law N° 007/2021 of 05/02/2021 governing companies).
What are the characteristics of a holding company?
The Rwandan company law provides for the general features and characteristics of a holding company, and that’s to say a company is another company’s holding company if: (Article 16 of Law N° 007/2021 of 05/02/2021 governing companies)
1. the other company is its subsidiary;
2. the holding company is not itself a subsidiary of any company. However, a holding company cannot be a subsidiary of any company registered in Rwanda. This implies that, in Rwanda a subsidiary company cannot be a holding company of the other.
Further, it should be appreciated that subsidiary company is barred from holding shares in its holding company and the holding company cannot therefore issue shares to its subsidiary nor can it transfer shares to its subsidiary.
How does a holding company come into existence?
Holding companies are created in the same normal procedure of creating other companies in Rwanda, however the objectives or activities of a holding company are different from those of other companies. To create a holding company, you simply need to file the articles of incorporation plus other relevant documentations with registrar of companies in the state or jurisdiction where you want to register the company.
One will also need to identify the business agents managing the holding and operating companies.
Operation and management in a holding company?
Holding company operate in a parental method over the other company (subsidiary company), directors of the subsidiary company operate their obligations in best interest of the holding company and or, subsidiary company may at some time be directly controlled by the holding company. For a company to be considered a holding company, it has to atleast be holding 50% shares in the other company.
It is therefore to note that, director(s) of a company that is a wholly owned or a subsidiary of another when exercising their powers or performing duties as a director of the company, act in a manner which he or she believes is in the best interests of the company’s holding company even though it may not be in the best interests of the company.
For the company to be a holding company of the other, it must be at least holding 50% shares in the other company. This implies that, a holding company is a parent or mother company of the other company called a subsidiary company.
Disclaimer on this content should not be taken as legal advice, and MK Associated Advocates will not be held accountable for any legal actions the reader may take referring to this, but rather can reach out for a formal legal advice(s) and legal opinions at our office on the above address and contacts(http://mkassociatedadvocates.rw/).