02. Groups: Revision & Update

Question 1

What are the requirements for a company to have ‘control’ of another

Answer 1

• Usually assume 50% ownership
  But must have
  1. Power over investee
  2. Exposure/rights to variable returns from invest
  3. Ability to use power over invest to affect investor returns

Question 2

Define ‘power’

Answer 2

Current ability to direct the relevant activities (e.g. activities that significantly affect invests returns)

Question 3

What are the indicators of control?

Answer 3

• Whether they have majority of votes
• Rights to appoint majority of directors
• Agreement with other investors
• A contract giving control over the key activities of the invest
• Whether other SH are dispersed
• Whether they hold potential voting rights resulting from convertible debt/options that are capable of being exercised