Corporate group

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A corporate group or group of companies is a collection of parent and subsidiary corporations that function as a single economic entity through a common source of control. The concept of a group is frequently used in tax law, accounting and (less frequently) company law to attribute the rights and duties of one member of the group to another or the whole. If the corporations are engaged in entirely different businesses, the group is called a conglomerate. The forming of corporate groups usually involves consolidation via mergers and acquisitions, although the group concept focuses on the instances in which the merged and acquired corporate entities remain in existence rather than the instances in which they are dissolved by the parent. The group may be owned by a holding company which may have no actual operations.

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In Germany, where a sophisticated law of the "concern" has been developed, the law of corporate groups is a fundamental aspect of its corporate law. Many other European jurisdictions also have a similar approach, while Commonwealth countries and the United States adhere to a formalistic doctrine that refuses to "pierce the corporate veil": corporations are treated outside tax and accounting as wholly separate legal entities.

A corporate group is composed of companies. The general rule is that a company is a separate legal entity from its shareholders, that is the shareholder's liability for the subsidiary's debts is limited to the value of the shares, [1] and the shareholders cannot be required to perform the company's obligations.

However, some jurisdictions create exceptions to this rule. For example, Germany has created affiliated enterprise law which provides situations in which one company is liable for the debts of another company. In New Zealand, the Companies Act provides that the assets of related companies may be pooled to pay the creditors if one of the companies is liquidated. However, the circumstances in which this power will be exercised are very narrow. [2]

Economic dependence

Law

Tax

Accounting

Civil law

Codetermination

Definition

Leff [3] defines business group as a group of companies that does business in different markets under common administrative or financial control whose members are linked by relations of interpersonal trust on the basis of similar personal ethnic or commercial background. One method of defining a group is as a cluster of legally distinct firms with a managerial relationship. [4] [5] The relationship between the firms in a group may be formal or informal. [6] A keiretsu is one type of business group. A concern is another.

Encarnation [7] refers to Indian business houses, emphasizing multiple forms of ties among group members. Powell and Smith-Doerr [8] state that a business group is a network of firms that regularly collaborate over a long time period. Granovetter [6] argues that business groups refers to an intermediate level of binding, excluding on the one hand a set of firms bound merely by short-term alliances and on the other a set of firms legally consolidated into a single unit. Williamson [9] claims that business groups lie between markets and hierarchies; this is further worked out by Douma & Schreuder. [10] Khanna and Rivkin [11] suggest that business groups are typically not legal constructs though some regulatory bodies have attempted to codify a definition. In the United Arab Emirates, a business group can also be known as a trade association. [12] Typical examples are Adidas Group or Icelandair Group.

See also

Further reading

Notes

  1. Salomon v Salomon
  2. Lewis Holdings Ltd vs Steel & Tube Holdings Ltd [2014] NZHC 3311
  3. Leff 1978:663
  4. Business Groups: Between Market and Firm Archived 2006-03-19 at the Wayback Machine by James R. Maclean, October 14, 2005. Accessed May 6, 2006.
  5. Business Groups in Emerging Markets: Paragons or Parasites? by Tarun Khanna & Yishay Yafeh, August 2005. Abstract accessed May 6, 2006.
  6. 1 2 Granovetter, M. (1994). “Business groups,” in The Handbook of Economic Sociology (J. N. Smelser and R. Swedberg, Eds.), pp. 453–475, Princeton University Press, Princeton.
  7. Encarnation 1989:45
  8. Smith-Doerr 1994:388
  9. Williamson 1975, 1985
  10. Sytse Douma & Hein Schreuder (2013) "Economic Approaches to Organizations", 5th edition, London: Pearson [http://catalogue.pearsoned.co.uk/educator/product/Economic-Approaches-to-Organisations/9780273735298.page
  11. Khanna and Rivkin 1999
  12. Abudhabichamber.ae Archived 2008-11-12 at the Wayback Machine

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