What is a Corporation Group?

Osmand Vitez
Osmand Vitez
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A corporation group is a number of companies connected through stock investments or other ownership stakes. These groups have specific accounting responsibilities to disclose investments to each other and report financial information on consolidated statements if necessary. These groups may or may not have specific limitations on ownership stakes in order to limit the confusion for investors looking to place capital in the controlling company as stock ownership. The ownership level of businesses within the corporation group can dictate how the company reports financial information.

Companies in one type of corporation group are divided between a parent and subsidiary. Significant ownership levels will result in a controlling interest in subsidiary companies. For most guidelines, 80 percent ownership is a controlling interest in a subsidiary company. This indicates the parent company can dictate the operations of the subsidiary company in a significant manner. Under this arrangement, the parent must consolidate the financial information of the subsidiary company. These groups can have more than one subsidiary.

A consolidation group may also be a brother-sister arrangement. In this group, corporations are usually closely held, meaning 30 or fewer people have an ownership stake in the business. Ownership stakes between these companies will be more than 50 percent of each company. The stock must be voting shares as this is how each company can control the others within the group. This arrangement may work well with companies that are in different, but related, industries. For example, a company that produces carbonated soft drinks may desire ownership stake in a snack company that produces and sells chips, pretzels, or similar items.

A corporation group can have a number of other combinations, although the previous two descriptions are probably the most common. Corporations and other businesses within each group must carefully follow all applicable rules and regulations within their country’s government. Groups that become too close or wind up controlling a significant portion of the market may trigger a review under anti-trust or monopoly laws. These laws and regulations prevent companies from gaining significant market share and dominating the market through price controls. Many governments are very particular with these arrangements, as large companies controlling large market shares are often seen as bad for the economy.

Creating a corporation group may also require companies to get approval from shareholders, which may be difficult to obtain. Shareholders look for financial returns when investing money into a corporation. Allowing the corporation to form a group with other companies may not offer the best return, as this arrangement may increase costs and reduce potential returns.

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