Entity A has a subsidiary B, which has been struggling in recent years and requires significant investment
Question:
Entity A has a subsidiary B, which has been struggling in recent years and requires significant investment to expand its operations. Entity A’s owners do not have sufficient financial resources available to meet subsidiary B’s investment needs. Entity A is family-owned and managed with a proud history. This is an important part of its marketing strategy. Entity A approaches entity C that is in the same line of business for funding. Entity C is keen to invest in subsidiary B as it is looking to increase its market share and this is an indirect way of doing this. It agrees to provide finance to subsidiary B, but in the form of an equity stake in the business. Entity A and entity C reach an agreement for entity C to make a significant investment in subsidiary B in return for a 20 per cent shareholding. The two parties, entity A and entity C, sign a contract that allows each of them to appoint two board members. All strategic operating decisions need to be approved by both shareholders through their representatives on the board. The chairmanship of the board of directors alternates between the directors at each meeting.
What is the relationship between A , B and C?
Step by Step Answer:
Advanced Financial Accounting An International Approach
ISBN: 9780273712749
1st Edition
Authors: Jagdish Kothari, Elisabetta Barone