Legal Regulation Aspects of the Corporate Group: Conception and Features
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Abstract
This paper focuses on the corporate group phenomenon in corporate law. The creation of a corporate group – as a form of business organization – was determined by development of the world’s economy. In the modern economy large and medium size business is conducted not by a single company but by a group of companies under the control of a parent corporation.
Modern corporate law is unimaginable without the laws of parent and affiliated companies, in other words – without corporate groups.
Author analyses the issues concerning the members of corporate group and specific relations between members, which allow to identify the existence of the corporate group.
The corporate group consists from independent legal entities (companies) and if an entity does not have the legal independence (e.g. representative office or subsidiary), it cannot be the member of the corporate group. Even natural persons or state (as well as other public entities) can be members of a corporate group. However, usually the members of a corporate group are the limited liability companies due to the nature of the limited liability of their participants.
In order to create a group of companies the relationship of control between at least two entities, which is determined as ability (right) of the parent company to make decisive influence to the commercial and financial activity of the subsidiary company, has to be established. The parent company can obtain such ability (right) in various ways, normally through participation in the subsidiary’s capital. When parent corporation participates in the subsidiary’s capital, it can control shareholders’ or members’ voting rights and/or control the appointment/ removal of management bodies. However there are many other ways of gaining control in corporate practice. In practice the economic control as the method of control of subsidiary company, which appears when one (parent) company has big factual power to decide over the economic destiny of another (subsidiary) company, is of the utmost importance.. Such control can originate from the contract, when particular economic relations develop between parties and depending on the economic conditions of the companies.
Modern corporate law is unimaginable without the laws of parent and affiliated companies, in other words – without corporate groups.
Author analyses the issues concerning the members of corporate group and specific relations between members, which allow to identify the existence of the corporate group.
The corporate group consists from independent legal entities (companies) and if an entity does not have the legal independence (e.g. representative office or subsidiary), it cannot be the member of the corporate group. Even natural persons or state (as well as other public entities) can be members of a corporate group. However, usually the members of a corporate group are the limited liability companies due to the nature of the limited liability of their participants.
In order to create a group of companies the relationship of control between at least two entities, which is determined as ability (right) of the parent company to make decisive influence to the commercial and financial activity of the subsidiary company, has to be established. The parent company can obtain such ability (right) in various ways, normally through participation in the subsidiary’s capital. When parent corporation participates in the subsidiary’s capital, it can control shareholders’ or members’ voting rights and/or control the appointment/ removal of management bodies. However there are many other ways of gaining control in corporate practice. In practice the economic control as the method of control of subsidiary company, which appears when one (parent) company has big factual power to decide over the economic destiny of another (subsidiary) company, is of the utmost importance.. Such control can originate from the contract, when particular economic relations develop between parties and depending on the economic conditions of the companies.
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Articles
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Authors retain copyright of their work, with first publication rights granted to the Association for Learning Technology.
Please see Copyright and Licence Agreement for further details.
