ACCA F4 - Corp and Business Law (ENG)

Part D The formation and constitution of business organisations  12: Corporations and legal personality 185

(d) It is a member of the subsidiary and controls alone, under an agreement with other members, a
majority of the voting rights in the company.

(e) A company is also a parent if:

(i) It has the power to exercise, or actually exercises, a dominant influence or control over the
subsidiary

(ii) It and the subsidiary are managed on a unified basis

(f) A company is also treated as the parent of the subsidiaries of its subsidiaries.

A company (A Ltd) is a wholly owned subsidiary of another company (B Ltd) if it has no other members
except B Ltd and its wholly owned subsidiaries, or persons acting on B Ltd's or its subsidiaries' behalf.

Parent company

Subsidiary company

owns all the shares of

The diagram illustrates a simple group. In practice, such groups might be much larger and much more
complex.

The importance of the parent and subsidiary company relationship is recognised in company law in a
number of rules.

(a) A parent company must generally prepare group accounts in which the financial situation of parent
and subsidiary companies is consolidated as if they were one person.

(b) A subsidiary may not ordinarily be a member of its parent company.

(c) Since directors of a parent company can control its subsidiary, some rules designed to regulate
the dealings of companies with directors also apply to its subsidiaries, particularly loans to
directors.

PER 10 requires you to prepare financial statements for single and combined entities. This section will
help you identify where a group (or combined entity) exists.

4.2 Quoted companies

As we have seen public companies may seek a listing on a public exchange. This option is not open to
private companies, who are not allowed to offer their shares for sale to the public. Listed companies are
sometimes referred to as quoted companies (because their shares are quoted publicly).

4.3 Small companies regime

Small companies benefit from the small companies regime's reduced legal requirements in terms of
filing accounts with the Registrar and obtaining an audit. The definitions of a small company for the
purposes of accounting and auditing are almost identical.