When Does the Parent Company Have the Right to Control the Financial Policies and Operations of Other Companies?

When does a parent company have the right to control the financial policies and operations of another company? (illustrative image)

In Article 8 of Circular 202/2014/TT-BTC, it is stipulated that a company is considered the parent company of another company if it has the right to control through the domination of financial policies and operations to obtain economic benefits from the activities of the company, regardless of the legal form or name of that company. The parent company has the right to control financial policies and operations in the following cases:

- Holding over 50% of the voting rights directly or indirectly in the subsidiary. In case of a difference between the voting rights ratio according to the business registration certificate and the voting rights ratio based on actual contributed capital, the voting rights are determined according to the company’s charter or the agreement between the parties;- Having the right to directly or indirectly appoint or dismiss the majority of the members of the Board of Directors, Directors, or General Directors of the subsidiary;- Having the right to cast the majority of votes at meetings of the Board of Directors or equivalent management level;- Having the right to decide on the amendments or supplements to the charter of the subsidiary;- Other investors agree to give the parent company over 50% of the voting rights;- Having the right to control financial policies and operations according to the agreed regulations.

Note: When determining the parent company's control rights, in addition to the regulations mentioned above, the company must consider potential voting rights arising from call options or debt and equity instruments that can be converted into common shares at the current time. If the aforementioned debt and equity instruments are not allowed to be converted into common shares at the current time, for example, they cannot be converted before a certain time in the future or until a future event occurs, they are not to be used to determine control rights.

See details at Circular 202/2014/TT-BTC effective from February 27, 2015.

Ty Na

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