Corporate group

A corporate group, company group or business group, also formally known as a group of companies, is a collection of parent and subsidiary corporations that function as a single economic entity through a common source of control.[1][2] These types of groups are often managed by an account manager. The concept of a group is frequently used in tax law and accounting and (less frequently) company law to attribute the rights and duties of one member of the group to another or the whole. If the corporations are engaged in entirely different businesses, the group is called a conglomerate. The forming of corporate groups usually involves consolidation via mergers and acquisitions, although the group concept focuses on the instances in which the merged and acquired corporate entities remain in existence rather than the instances in which they are dissolved by the parent.[3] The group may be owned by a holding company which may have no actual operations.

Legal independence

A corporate group is composed of companies. The general rule is that a company is a separate legal entity from its shareholders, that is the shareholder's liability for the subsidiary's debts is limited to the value of the shares,[4] and the shareholders cannot be required to perform the company's obligations.

However, some jurisdictions create exceptions to this rule. For example, Germany has created affiliated enterprise law which provides situations in which one company is liable for the debts of another company. In New Zealand, the Companies Act provides that the assets of related companies may be pooled to pay the creditors if one of the companies is liquidated. However, the circumstances in which this power will be exercised are very narrow.[5]

• Berkey v Third Avenue Railway

Economic dependence

• Concern (business)
• DHN v Tower Hamlets LBC
• EU Seventh Company Law Directive 83/349, on group accounts
• EU Draft Ninth Company Law Directive, on corporate groups

Law

Definition

Leff[6] defines "business group" as a group of companies that does business in different markets under common administrative or financial control whose members are linked by relations of interpersonal trust on the basis of similar personal ethnic or commercial background. One method of defining a group is as a cluster of legally distinct firms with a managerial relationship.[7][8] The relationship between the firms in a group may be formal or informal.[9] A keiretsu is one type of business group. A concern is another.

Douma and Schreuder (2013) distinguish "horizontal" and "vertical business groups" as follows: 'Business groups can be horizontal or vertical as far as their structure is concerned. In a horizontal business group there is no central holding company – the group companies are connected through various formal or informal ties, including reciprocal shareholding. Thus, a horizontal business group is a rather loose confederation of firms. Coordination between them is achieved mainly by mutual adjustment and standardization of norms. Mitsubishi is a well-known example of a horizontal business group as are many other

See also

• Business alliance
• Chaebol
• Concern
• Conglomerate
• Holding company
• Keiretsu
• Subsidiary
• Zaibatsu
• Multinational corporation

Further reading

• Schmitthoff CM, and Wooldridge F, (eds), Groups of Companies (Sweet & Maxwell 1991)
• Blumberg PI, The Law of Corporate Groups: Tort, Contract and Other Common Law Problems in the Substantive Law of Parent and Subsidiary Corporations (Little, Brown and Company 1987)
• Witting C, Liability of Corporate Groups and Networks (Cambridge University Press 2018)
• Morris CHR, The Law of Financial Services Groups (Oxford University Press 2019)