Controlled Corporation Laws
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What Is a Controlled Corporation?
A controlled corporation is defined as any corporation that is effectively owned and controlled by a different corporation. This ownership and control is usually due to the other firm owning a certain percentage of the controlled corporation’s stock or voting shares. The controlled company still operates its own business functions, though it may not always have its own full management direction.
Example: Ford Motor Credit Company is considered a "controlled company" of Ford Motor Company. This means that Ford Motor Company owns enough percentage of the Ford Motor Credit Company to assume control of its policies.
Types of Controlled Corporations
There are two basic types of controlled corporation structures:
- Parent-Subsidiary: The company in control is called the "parent company," while the controlled company is known as the "subsidiary company." By definition, a parent company owns at least 80% of the total voting shares, or at least 80% of the total value of all classes of shares of stock of the subsidiary company.
- Brother-Sister: This type of controlled group consists of two or more corporations, wherein five or less persons own more than 50% of the total voting shares, or more than 50% of the total value of stock for each corporation.
In addition, there are also "combined groups" which are comprised of a combination of the above two types of controlled corporations. State laws vary with regards to regulation of controlled groups, so be sure to check your local laws for specific details.
Which Company Can Be Held Liable in a Controlled Corporation Structure?
The "control" aspect of controlled corporations usually refers to financial matters such as the issuance and ownership of company stocks. The parent company usually has discretion to decide such issues as how stocks are to be distributed and who they may be offered to. As such, the subsidiary group might still be held liable for any debts or unlawful activities that can be attributed to the group.
The parent company may also be held liable in some cases. This is especially true in instances where the controlled company was specifically directed or authorized by the parent company to perform the act in question.
Usually, the companies have a contract describing the nature of their relationship. The contract is likely to contain a clause expressing whether the companies will be held liable to one another and what should happen in the event of a lawsuit or debt collection.
If you have a dispute involving a controlled group, you should request to review the agreements.
Do I Need a Lawyer for Controlled Corporation Issues?
If you have a dispute with a controlled corporation, it can be a complex matter. Controlled groups can involve many different corporations, and the organizational structure can contain many different levels of liability. You should consult with a lawyer to determine which parties may be involved in your claim. Also, if you are thinking about creating a controlled corporation, an attorney can offer much advice and assist you in drafting the necessary documents.
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Last Modified: 12-31-2013 03:04 PM PST
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