CA 2016: RELATED CORPORATIONS and ASSOCIATED COMPANY

"related corporation" is defined in CA2016
"associate" company is an accounting standard definition, it is also defined as such in the Listing Requirements of Bursa.

We shall examine each defintion in turn.


RELATED CORPORATION


It is common to find the phrase "related corporation" in corporate practice.

When is a corporation "related" to another? This is defined in the CA2016.


Section 7 of the CA 2016

A corporation is deemed to be related to each other if-

(a) it is the holding company of another corporation;

(b) it is a subsidiary of another corporation; or

(c) it is a subsidiary of the holding company of another corporation.

ASSOCIATED COMPANIES


This is defined in para 1.01 of the Listing Requirements of Bursa,

associated company

has the meaning given to "associate" under the accounting  standards issued or adopted by the Malaysian Accounting  Standards Board.

MALAYSIAN ACCOUNTING STANDARDS BOARD (MASB)

General rule of the thumb is between 20% to 50% of shareholding is an associate. In the standards, it is a test of "significant influence" which 20% to 50% rule is a genera assumption of such significant influence.

MASB 12

An associate is an enterprise in which the investor has significant influence and which is neither a subsidiary nor a joint venture of the investor. If an investor holds, directly or indirectly, 20% or more of the voting power of the investee, it is presumed that the investor does have significant influence, unless it can be clearly demonstrated otherwise.

Significant Influence

1. If an investor holds, directly or indirectly through subsidiaries, 20% or more of the voting power of the investee, it is presumed that the investor does have significant influence, unless it can be clearly demonstrated that this is not the case. Conversely, if the investor holds, directly or indirectly through subsidiaries, less than 20% of the voting power of the investee, it is presumed that the investor does not have significant influence, unless such influence can be clearly demonstrated. A substantial or majority ownership by another investor does not necessarily preclude an investor from having significant influence.
2. The existence of significant influence by an investor is usually evidenced in one or more of the following ways:
   1. representation on the board of directors or equivalent governing body of the investee;
   2. participation in policy making processes;
   3. material transactions between the investor and the investee;
   4. interchange of managerial personnel; or
   5. provision of essential technical information.