Associated companies - again

Associated companies - again

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Company X has following shareholders - A 40%, B, C and D 20% each, B and C married, D is the son. A is unconnected.

Company Y - A 30%, B 30%, others (unconnected) 40%

Are X and Y connected? The problem seems to be the word "may" in 416(6). I always thought that you have to look for the minimum controlling groups. In X, ignoring ESC C9, B (or C or D) controls the company on their own - having the rights of C and D attributed to him, whereas Y is controlled by a minimum of 2 shareholders so it would appear they are not connected.

However, it has been argued that you need to attribute only sufficient rights so as to result in a controlling combination. This means, for instance, that for X you only need to attribute C's rights to B, such that A and B control X (and Y) so the two are connected.

Which is correct?
Penny Eaton

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By JamesBassan
05th Jun 2007 16:53

Euan was right first time!
You need to look at the minimum controlling combination in both.

X - A(40%) , B (20%) - therefore control

Y - A(30%), B (30%) - therefore control

Therefore, both associated with each other since A & B CAN control both. They may chose not to. But they can.

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By Euan MacLennan
05th Jun 2007 11:05

I think you are right
If D is a minor, B/C has control of X, but not of Y, so X and Y would not be associated if D is a minor, but would be if he is not.

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By Euan MacLennan
04th Jun 2007 19:19

Connected
A & B together form an irreducible group which controls 80% of X (or 100% if D is a minor) and 60% of Y, so X and Y are connected.

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By User deleted
04th Jun 2007 19:32

Thanks , Euan
But if D were a minor, such that B controlled 60%, then do you agree that X and Y are not connected? If so, can one disapply C9?

The point I was making was that, whilst A and B may be considered an irreducible controlling group if you attribute only C's rights to B, if you attribute the rights of both C an D the smallest irreducible controlling group of X becomes B on his own.

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By AnonymousUser
06th Jun 2007 11:36

What is minimum controlling combination?
what is the minimum controlling combination of X? If B is not connected to any other shareholder then I see that A and B is a minimum controlling combination. But here you may attribute the rights of associates to B so that he can control the company himself, so B is the minimum controlling combination.

Or does the concept of 'minimum controlling combination' extend to the minimum number of shareholders needed to be accounted for to give control, even if certain shareholders do not actually end up in that combination. In other words, you don't need to attribute rights of D to B to end up with a controlling combination - as B needs only the rights of C (or D) to give him, with A, control that's as far as you need to go?

It has been argued that 'may' gives Revenue discretion so they need only attribute rights of, say, C to B (which would give AB controlling combination). However, in Newfield, Revenue argued that they did not have such discretion and were obliged to attribute all associates' rights where possible.


I don't know if a simpler example would help or hinder - A 34%, B and C (married) 33% each. What is the mimimum controlling combination? I would argue B (or C) but not AB.

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