Associate Companies

Associate Companies

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Three people A,B,C...

A & B hold 50% each in Company W. There is no connection between them.

A & C want to set a new company (who are husband and Wife), again they hold 50% each in Company Z.

Would these two companies be classed as associate companies?

Chee Wan

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By User deleted
12th Aug 2005 10:00

And are there any loans from the shareholders?
Obviously you need to look very carefully at Company W before you can make any conclusions.

Agreed deadlock clause etc first step
Then need to look at whether the company owes money to either/both of the shareholders. If one has a loan in excess of the other party it is assumed that they influence control over the company in excess of the other shareholder.

Not the same principles in company Z as A treated as effectively controlling this when looking at control; and as the control issue is an issue for any point in time during the accounting period this loan issue needs to constantly borne in mind.

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By andymeeson
12th Aug 2005 09:03

Will depend on the votes
At first blush, A (taking account of spouse's interest) controls Z, but does not control W, so the two are not associated.

However: is W really a straight 50:50 company?

What do the Articles of Association say about resolving deadlocks? If A has a casting vote, then the companies are associated.

Alternatively, does A effectively run the company on a day-to-day basis? If B's 50% of the votes only come into play at the AGM, it is likely that A has true control of W, which would again mean the two were associated.

As ever, it all hinges on the full fact pattern.

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