Group, unincorporated group, associated enterprises. As the saying goes, a child has many names. In this case, however, the analogy does not fly. But if we have to continue along this metaphorical path, we could say that we are dealing with a group of siblings. They all represent economic constellations and differ only in the proportion of ownership. So, similar, but not exactly the same. But let's take it from the beginning.
A group is defined as an economic constellation consisting of a parent company and at least one subsidiary, in which the parent company has a controlling influence. We can therefore say that, at least in the normal case, a group arises when the parent company acquires either a direct or an indirect majority of the voting rights in the subsidiary. It is also important to remember that a group relationship can only arise between legal persons. We cannot therefore speak of a group in cases where a private individual owns two companies.
According to the Annual Accounts Act, a controlling influence is a basic condition for speaking of parent company and subsidiary, and thus also a basic condition for a group relationship between two legal entities to arise. It is through a controlling influence that company X can be classified as the parent company of subsidiary Y. But what does that mean? Zooming in, and looking more closely at the legal text, we can see that a controlling influence is defined as follows:
Company X is defined as the parent company and company Y is defined as the subsidiary in the event that company X would:
The obvious advantage of having a group is the possibility of coordinating the financial activities of the different businesses. The management and monitoring of activities and responsibilities will be easier and there are also financial and tax advantages to forming a group. Thus, forming a group creates several synergies, as the coordination of, for example, production, purchasing and marketing becomes more streamlined. At the same time, there is often a correlation between more companies and more administration, which often means higher costs. For example, a group places higher demands on accounting and auditing, as groups may also need to prepare separate consolidated accounts.
That the possibilities for coordination are improving sounds rather abstract and vague. It may not be the best selling point for group formation either. So let's mention some concrete economic benefits of a group relationship:
A disincorporated group, like a genuine group, is a group of companies, but owned or controlled by the same person or persons and without formally constituting a group according to the criteria of limited liability companies. In other words, there is no such thing as a parent company at the top, with subsidiaries below it, at least not in the pure legal sense. Therefore, unincorporated groups have neither the rights nor the obligations of statutory groups. On the other hand, there is nothing to prevent the owner or owners from managing the companies as a group in practice.
An associated company is usually defined on the basis of two criteria: there must be an ownership interest and significant influence in the company. In turn, an ownership interest is usually defined by a minimum 20% shareholding in the company, while significant influence is usually defined by a minimum 20% shareholding in the voting rights. However, there are other ways in which significant influence can be achieved. For example, a company may be considered to have significant influence in another company if it is represented on the board of directors or participates in the strategic work. It may also be the case that there are significant transactions between the companies.