Q&As

Can the board of a parent company make decisions for its wholly owned subsidiary?

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Published by a UUÂãÁÄÖ±²¥ Corporate expert
Published on: 13 April 2018
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This Q&A considers whether the board of a parent company is able to make decisions for its wholly owned subsidiary or whether the subsidiary’s board would need to pass resolutions where both companies have adopted the model articles for private companies limited by shares. Produced in partnership with Georgina Fraser, Lewis Silkin LLP.

The directors of a company are responsible for the day-to-day management of that company. The directors are so empowered by the company’s articles of association, the Companies Act 2006 (CA 2006), any applicable resolutions of its members and common law. These powers are limited by any restrictions or limitations in the company’s articles of association, directors’ general duties under CA 2006, ss 171–177, and matters reserved to the members by the CA 2006 (ie, matters which require shareholder approval such as company transactions with directors). For more detailed information about powers of directors, see Practice Note: Powers of directors.

Where a company has adopted the model articles for private companies limited by shares (Model Articles):

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Jurisdiction(s):
United Kingdom
Related legal acts:
Key definition:
Subsidiary definition
What does Subsidiary mean?

There are two suggested definitions for the term 'subsidiary', as commonly used in agreements. CA 2006, s 1159 provides that a company is a holding company of another company (its subsidiary) if it satisfies one of three tests, two of which require it to be a member of the other company (as well as to possess certain rights, which go to its voting powers). Membership of a company is a question of fact and the court has found that if a company (company A) has transferred shares in another company (company B) to a lender in connection with the taking of security and the name of that lender or the lender’s nominee has been entered in the register of members, then company A is not a member of company B in respect of those shares: see Enviroco Ltd v Farstad Supply A/S.

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