Corporate group

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.

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.

Legal independence

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.

• Berkey v Third Avenue Railway

Economic dependence

• Concern (business)
• DHN v Tower Hamlets LBC

• EU Seventh Company Law Directive 83/349, on group accounts
• EU Draft Ninth Company Law Directive, on corporate groups

Law

Accounting

• EU Seventh Company Law Directive 83/349, on group accounts

Civil law

• Salomon v Salomon
• Berkey v Third Avenue Railway
• Adams v Cape Industries plc

Codetermination

• Mitbestimmungsgesetz

Definition

Leff^[2] 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.^[3][4] The relationship between the firms in a group may be formal or informal.^[5] A keiretsu is one type of business group. A concern is another.

Encarnation^[6] refers to Indian business houses, emphasizing multiple forms of ties among group members. Powell and Smith-Doerr^[7] state that a business group is a network of firms that regularly collaborate over a long time period. Granovetter^[5] 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^[8] claims that business groups lie between markets and hierarchies; this is further worked out by Douma & Schreuder.^[9] Khanna and Rivkin^[10] 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.^[11] Typical examples are Adidas Group or Icelandair Group.

See also

• Business alliance
• Chaebol
• Who Owns Whom (set of annual directories)

Notes

References