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Associate companies

When is a company an associate company?

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Hello,

From reading FRS 102 (section 1A) I understand an associate company to be defined as an entity that the investor has significant influence over (that is neither a subsidiary nor an interest in a joint venture).  Significant influence is the power to participate in the financial and operating policy decisions of the associate but is not control or joint control over those policies.  If an investor holds, directly or indirectly, 20 per cent or more of the voting power of an associate, it is presumed that the investor has significant influence (unless they demonstrate otherwise).

My question is - if a shareholder held 50% voting shares in Company A and this shareholder also held 20% voting shares in Company B (and the shareholder had significant influence in both companies), would company A and B then be associated?  If they are associated are any debtor / creditor balances between the two companies (including trade debtors / creditors) to be shown in the debtor / creditor note as 'Associate Amounts falling due within one year ...etc' instead of shown as say 'trade debtors / creditors' in the note?

Many Thanks in advance.

 

 

Replies (5)

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By johngroganjga
30th Jun 2022 17:05

Two companies are associated in the formal sense only when one is a shareholder in the other, not when a single individual holds shares in both.

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By thevaliant
30th Jun 2022 17:07

No.

Associate companies are where Company A owns between 20-50% in another company (B).

If a person, a shareholder, owns half of A and 20% of B, it is unlikely (though not impossible) that these companies are even related. They *might* be companies under common control, but that is not the same as an associate. It's just a related party (possibly).

But even this is largely dependent on more than just shareholding.
I had a client company that held 28% shares in a company (I'll call it C). Company C was 28% owned by my client and 72% owned by one individual. Said individual ran C and made all decisions. In my mind, C was NOT an associate of client as C just excluded client from all decisions.

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By Bells7788
30th Jun 2022 18:58

Thank you for both for your reply, really helpful. I had started to over think this!

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By Bells7788
30th Jun 2022 19:01

Sorry, to add one other question. If say both companies were close companies, would they be associated companies for transactions between the two companies? I thought they would be.

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Replying to Bells7788:
By johngroganjga
01st Jul 2022 08:56

As you have already been told, companies are only associated in the formal sense if one of them holds shares in the other. One or both of them being close companies, or not, has nothing to do with it.

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