Definition of a Group of Companies
According to the Accounting Act, a group of companies is formed when an accountable company exercises control over another accountable domestic company or a comparable foreign corporation. As explained above [188.8.131.52 Purpose of Accounting and Accountability], as a basic rule, all incorporated entities under private law are accountable.
Control that constitutes a group relationship shall be deemed to exist when an accountable entity (parent corporation):
holds more than half of the other corporation’s (subsidiary’s) voting rights arising from shares or similar interests;
has the right to appoint more than half of the members of the other corporation’s (subsidiary’s) board of directors or a comparable body, or the members of a body which has the right to appoint the members of the board of directors or such comparable body (e.g., the administrative board of a limited company).
In addition to actual ownership or membership, the voting rights or right to appoint referred to in the above definition may be based on, for example, a provision of the Articles of Association, Memorandum of Association, or other agreement. Furthermore, possible voting restrictions shall not be taken into account in the calculation of the voting rights, even if such voting restriction would in practice restrict the parent company from using its voting rights entirely.
In accounting, a group relationship is first and foremost relevant as regards the obligation to prepare consolidated financial statements, as well as the recording of intra-group financial transactions.