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Hi tutor,
My question is if entity holds 40% of other entity. And also have right to appoint 1 of 5 directors on board. Doesn’t it give control to investor over entity.
Because 1of 5 represents 20% and total percentage of ownership considering (40+20)=60 is more than 50% and gives control.
I really appreciate if you correct it.Thanks.
Hi,
No, if you own 40% and only one of the five directors then you do not have control as you do not have the power to direct the activities of the entity. You only have influence and it would be treated as an associate.
To have control you would need either greater than 50% ownership of three out of the five directors. You have to look at each element in isolation, you cannot combine them as you have done in your post above.
Thanks
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