IFRS 10 confirms that an investor with the majority of an investee’s voting rights controls an investee in most circumstances. In the absence of other relevant factors the majority vote holder has control if: Control without a majority of voting rights
- the investee’s relevant activities are directed by the holder of the majority of the voting rights; or Control without a majority of voting rights
- the majority of the members of the governing body that directs the relevant activities is appointed by a vote of the holder of the majority of the voting rights.
In special cases, control is possible without having to own more than 50% of voting stock. For example, if agreed, shareholders may pass control to a chosen one owning much fewer shares (for example in the case of the two petroleum companies, MOL Group and INA – Industrija nafte).
In other cases, companies divide their stock into voting and non-voting classes, which can allow a small minority of shareholders to control a majority of the voting shares. This technique is often used to allow a company’s founders to cash out much of their ownership without giving up control.
In the American media, dual-class structures caught on in the mid-20th century as families such as the Grahams of The Washington Post Company and the Ochs-Sulzbergers of The New York Times sought to gain access to public capital without losing control. Dow Jones & Company, publisher of The Wall Street Journal, had a similar structure and was controlled by the Bancroft family but was later bought by News Corporation in 2007, which itself is controlled by Rupert Murdoch and his family through a similar dual-class structure.
IFRS 10 has more specific guidance on when the majority owner does not have control in the following situations: Control without a majority of voting rights
Another entity that is not an agent has rights to direct relevant activities
Voting rights are not substantive
The simple way out by assessing the involvement of a government, court, administrator (or similar) or regulator in an investee’s decision-making process results in no control is not that easy. It simply does not necessarily mean that a majority owner does not have control. Careful consideration of all facts and circumstances is necessary and judgment may be required.