Definition of subsidiary

Category: Policy wordings and clauses · Reviewed by the Apex broking team · Last reviewed 2026-08-22 · ~5 min read

The statutory definition: Companies Act 2006 section 1159

Section 1159(1) provides that a company is a subsidiary of another company, its holding company, if that other company holds a majority of the voting rights in it; or is a member of it and has the right to appoint or remove a majority of its board of directors; or is a member of it and controls alone, under an agreement with other members, a majority of the voting rights in it. A company is also a subsidiary of a company that is its holding company’s subsidiary — so the definition reaches down through the chain, not only to the first tier.

Section 1159(2) defines a wholly-owned subsidiary as one with no members except its holding company and that holding company’s wholly-owned subsidiaries, or persons acting on their behalf. Section 1159(3) applies Schedule 6, which explains and supplements the expressions used, and section 1159(4) provides that in the section and that Schedule “company” includes any body corporate.

The heart of the test is control, expressed through voting rights and board appointment, not economic ownership. That is why a company can hold a large minority economic stake without the target being a subsidiary, and why a company holding a bare majority of votes can have a subsidiary it owns relatively little of.

Section 1162 and subsidiary undertakings

Section 1162 sets out a different and wider test, used for accounting purposes to determine parent and subsidiary undertakings and therefore which entities are consolidated in group accounts. In addition to the voting-rights and board-appointment limbs, it captures the right to exercise a dominant influence through the articles or a control contract, control of a majority of voting rights under an agreement with other shareholders, and situations involving actual dominant influence or management on a unified basis.

The practical significance for insurance is that section 1162 catches entities that section 1159 does not, and it uses “undertaking”, which is broader than “company”. A wording that defines subsidiary by reference to section 1159 will therefore be narrower than the group shown in the consolidated accounts. Groups often assume the two are the same. They are not.

What the wording actually needs to do

A well-drafted subsidiary definition in a policy has to answer more questions than the statute does.

When must the entity have been a subsidiary? At inception, throughout the period, or at the time of the act or claim? On long-tail covers this is the most consequential question in the definition. A former subsidiary sold mid-year, and the acts done while it was owned, may or may not be covered depending on the drafting.

What happens to entities acquired mid-term? Most commercial wordings include an automatic acquisition provision, covering newly acquired subsidiaries automatically if they fall below stated thresholds — typically by reference to size relative to the existing group, jurisdiction, and activity — and requiring notification and specific agreement above them. Acquisitions in new territories or new activities routinely fall outside the automatic provision.

Are non-companies included? Limited liability partnerships, partnerships, joint ventures, trusts, foreign entities and dormant vehicles are common in real group structures and are not always caught by a definition drafted around “company”. Fifty-fifty joint ventures are almost never subsidiaries under any of these tests, and need naming if they are to be insured.

Does cover extend to acts before ownership? On claims-made covers, whether the policy responds to acts of a subsidiary committed before it joined the group is a separate question from whether it is a subsidiary now, and is usually dealt with by a prior acts provision rather than the subsidiary definition.

Where it bites in practice

The definition matters most on covers that insure a group as a whole. On directors and officers policies it decides which entities’ directors are insured persons, which is a personal exposure for individuals rather than a balance sheet issue for the company. On professional indemnity it decides whose professional services are insured. On property and liability programmes it decides which entities’ assets and operations are covered and, less obviously, whose interest is insured for the purposes of contractual insurance obligations.

The failure mode is consistent: the group changes, the schedule does not. Entities are incorporated for a project, struck off, sold, or restructured for tax reasons, and the insurance schedule carries forward the previous year’s list. The check is unglamorous — reconcile the insured entity list against the current group structure at every renewal — and it is worth doing in writing.

Why it matters

“And its subsidiaries” reads like boilerplate and behaves like a coverage clause. If an entity is outside the definition, nothing in the policy responds to it, however clearly the parties assumed it was covered. Because the statutory tests turn on control rather than ownership, and because real group structures contain LLPs, joint ventures and dormant companies that the tests treat differently, the only reliable approach is to name the entities and check the list annually.

Frequently asked questions

How does the Companies Act 2006 define a subsidiary?

Section 1159(1) makes a company a subsidiary of another if that other holds a majority of the voting rights, or is a member with the right to appoint or remove a majority of the board, or is a member controlling a majority of the votes under an agreement with other members. Subsidiaries of subsidiaries are included.

What is the difference between section 1159 and section 1162?

Section 1159 defines subsidiary companies by control through votes and board appointment. Section 1162 defines parent and subsidiary undertakings for accounting purposes and is wider, catching dominant influence through the articles or a control contract and management on a unified basis. A policy using 1159 is narrower than the consolidated group.

Are companies we acquire mid-year automatically insured?

Usually only within limits. Most commercial wordings cover newly acquired subsidiaries automatically where they fall below stated thresholds on size, territory and activity, and require notification and agreement above them. Acquisitions in new territories or lines of business commonly fall outside the automatic provision.

Is a fifty-fifty joint venture a subsidiary?

Almost never, under any of the usual tests, because neither party holds a majority of the voting rights or controls the board. If a joint venture entity is meant to be insured it has to be named in the schedule or brought in by a specific extension, not assumed to fall within 'and its subsidiaries'.

Related entries

• Directors and officers insurance
• Professional indemnity insurance
• Severability clause
• Utmost good faith
• Commercial insurance UK

This entry is part of the Apex Insurance Wiki. This entry is insurance information, not legal advice. It describes UK insurance law and market practice as at August 2026 and does not address the terms of any particular policy. Take advice on your own wording and your own facts before acting. Last reviewed 2026-08-22. Next review: 2027-02-22.

Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority (FRN 724952). This page is general information, not advice on a specific policy.