Investing in an Associated Company or Related Party

Putting money into a related company — as equity, a loan, or a guarantee — usually needs member approval in advance, and it almost always triggers a second, separate related-party-transaction requirement on top.

Steps

  1. Check first whether your company is exempted from the Section 199 approval requirement (S.R.O. 1239(I)/2017 exempts banks, NBFCs, wholly-owned subsidiaries, and a few other classes).
  2. If not exempted, prepare the full disclosure statement for the notice of general meeting — counterparty financials, purpose, funding source, and pricing detail for equity investments.
  3. Have the directors certify that due diligence was carried out before recommending the investment to members.
  4. Pass the special resolution — remember it's only valid for 12 months unless the members say otherwise.
  5. Enter the investment in the permanent Register of Investments in Associated Companies/Undertakings.
  6. Separately, confirm whether the same transaction is a related-party transaction under Section 208 — if so, get board approval under the arm's-length test and log it in the related-party register (Sections 208-209).
  7. Keep both registers current — they're inspected independently and neither approval substitutes for the other.

Sections involved

§199 Section 199 — Investments in associated companies and undertaking §208 Section 208 — Related party transactions §209 Section 209 — Register of contracts or arrangements in which directors are interested

See Important Definitions

Key terms from Section 2 (Definitions) of the Companies Act, 2017 (and, where noted, the LLP Act, 2017) that matter for this task.

§2(4) associated companies / associated undertakings §2(43) net worth §2(46) ordinary resolution §2(66) special resolution
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