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I am reviewing my notes on “Criteria for Control” and on the “Power to direct the relevant activities”, I understand that the potentially convertible shares through a convertible loan (converted at discretion of the holder) is counted in determining control.
In a scenario where a company has 100 shares owned by a single owner, and an outstanding convertible loan which can be converted into 200 shares, is the company is a subsidiary of the holder of the convertible loan, even though the holder has not converted the shares nor able to exercise any power on the company (given it does have those 200 shares yet)?
What happens to owner of the 100 shares? The owner has all of the issued equity but does not consider company as a subsidiary?
Many thanks.
If it is considered that there is no control then there would be no consolidation.
If it is considered that there is control there would probably be consolidation. It’s a bit like a structured entity where you would normally consolidate but, if that does not happen, you would make disclosure of control or ability to control.
In the exam the marks will be going for you saying that it might be a subsidiary and for giving the definition of control.
OK understood. So the discussion matters, not necessary just a definitive answer.
Many thanks.
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