GVD Holdings

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How much ownership counts as control of a company?

Reviewed by Expert review: Claude (AI, Legal Compliance Checker) with cited sources

There is no single percentage at which one company controls another. The answer depends on the country, and on the purpose the rule serves. Some tests count voting power, some count share capital, some count the right to appoint the board, and some tax rules set a much higher bar than company law does. This page compares a few of them in plain words.

Control through voting power and the board

Control is usually tied to voting power. The tests below also look at the right to appoint or remove a majority of the board, which can apply even when the shareholding is smaller, and at agreements with other shareholders.

The Wikipedia article on holding companies says the definition of a parent company normally differs across jurisdictions. It is the source for the Australian and Singapore summaries below. The UK and US statute texts were opened and read directly.

The United Kingdom

The Companies Act 2006, section 1159 defines a subsidiary by three routes. One company is a subsidiary of another if the other:

  • holds a majority of the voting rights in it, or
  • is a member of it and has the right to appoint or remove a majority of its board, or
  • is a member of it and controls alone, under an agreement with other members, a majority of its voting rights.

A majority of voting rights is enough. Wikipedia's UK section adds that a stake of over 51% is generally treated as making the holder in effect the de facto parent company, and that a stake below 50% can still give material influence. Because the test also looks at board appointment rights and agreements, a holding below 50% can still make a company a subsidiary in some cases. The Act's wording is the reference point; this page does not add to it.

The United States: the 80% tax test

The 80% figure in the United States comes from tax law, not company law. Under 26 U.S.C. section 1504(a), a group of corporations counts as an affiliated group for tax purposes when a common parent owns stock meeting two tests in each subsidiary below it:

  • at least 80% of the total voting power of the stock, and
  • a value equal to at least 80% of the total value of the stock.

The Wikipedia article states that tax consolidation benefits, such as tax-free dividends between group members, depend on owning 80% of the stock in voting and value. The statute text read for this page defines the term "affiliated group" and sets the 80% tests; it does not itself list the tax consequences, so those are reported here only as Wikipedia describes them.

Note what the test is for. It is a tax definition. It is not a general test of who controls a company in the ordinary sense.

A worked example with invented numbers

Suppose a company, Holdco, owns 60% of the voting shares and 60% of the total value of a company, Targetco. The figures are invented for illustration.

  • Under the UK test, Holdco holds a majority of the voting rights, so Targetco is a subsidiary of Holdco.
  • Under the US tax test in section 1504(a)(2), 60% is below the 80% threshold for voting power and for value, so Targetco's stock does not meet the stock requirement for an affiliated group.

Both answers come from the same shareholding. They differ because the two rules ask different questions. A reader who wants a single answer for "is Targetco controlled?" has to say which rule they mean.

Australia

The Wikipedia article summarises the Australian test (Corporations Act 2001, section 46). The official text of section 46 could not be retrieved for this page, so this is a secondary summary only. One body is a subsidiary of another if the other controls its board, controls more than half of its votes, or holds more than half of its issued share capital. Indirect control through a subsidiary also counts. The Act is the primary text; read it before relying on this summary.

Singapore

The Wikipedia article summarises the Singapore test (Companies Act, section 5). The official statute site refused access when this page was checked, so this is a secondary summary only. A corporation is a subsidiary of another if the other controls its board or controls more than half of its voting power, or if it is a subsidiary of another's subsidiary. The Act is the primary text.

Why the purpose of the rule changes the threshold

The thresholds above differ for a reason. The UK test is a company-law definition of subsidiary. The US test is a tax definition of an affiliated group, and it sets a higher bar of 80%.

So a percentage that makes one company a subsidiary for one purpose may not do so for another. A company can be a subsidiary under one test and still fall outside the other, as the example above shows.

The thresholds side by side

CountrySource used hereTest as described
United KingdomCompanies Act 2006, section 1159Majority of voting rights, or right to appoint or remove a majority of the board, or control of a voting majority under an agreement
United States (tax)26 U.S.C. section 1504(a)At least 80% of voting power and of total value, for an affiliated group
AustraliaWikipedia summary; statute text could not be retrievedControl of the board, more than half of the votes, or more than half of the issued share capital
SingaporeWikipedia summary; statute site refused accessControl of the board, or more than half of the voting power

The last two rows rest on Wikipedia alone; the official statutes were not read. Where Wikipedia and an official text differ, the official text governs.

Reading a threshold correctly

When a source gives a percentage, check four things before using it:

  1. The purpose of the rule: company law, tax, or another area
  2. Whether the test counts shares, votes, value, or the board
  3. Whether the test is "more than" or "at least" the stated figure
  4. The date and version of the text, since rules are amended

Skipping any of these is the most common way two correct figures end up contradicting each other.

Official sources and a note that this is not advice

This page compares rules and points to where they are written. It is not legal, tax or financial advice. Whether a particular holding gives control in a particular country, and what follows from that, is a question for a qualified adviser who has the full facts.

For the basic terms, see what a holding company is and holding company, parent company and subsidiary.

Sources