Think of an associate company as not quite a subsidiary.
If one company owns another company outright, then the smaller firm is a subsidiary of the bigger one. But there are times when a larger company owns only a smallish stake in a smaller one, but not a majority of the shares. It has a sizable interest, possibly seats on the board and a heavy influence on management, but less than 50% of the voting stock. In this scenario, the smaller firm is an associate company.
The distinction has some impact on the accounting for the larger company. Even though it owns a notable stake in the smaller company, the smaller firm's holdings don't get rolled into the holdings for the larger company for accounting purposes, as would happen with a straight-up subsidiary. Instead, the holdings are viewed like an investment. The larger company holds shares in the smaller company as an asset, but doesn't hold the smaller company's assets directly.
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Finance: What is non-voting stock?4 Views
finance a la shmoop- what is non-voting stock? hmm well it's stock that doesn't
vote. bet you're shocked to hear that. most people need a PhD in finance to [stock wears an "I didn't vote" sticker.
understand that notion. but really that's it in most cases common stock carries
with it the right to vote. and in fact it's the common shareholders who elect
the board of directors. but every now and then a potentially hostile investor
comes along and buys or wants to buy a big chunk of stock in a company. well the
amount might be a block large enough to elect that potentially hostile investor
slate or the group of people that investor wants to place on the board to
represent her evil intentions .when that happens companies will often create a
class of common stock similar in every way to its normal common only with its [stock checklist of privileges listed]
voting rights stripped away .that way the investor can own an economic interest in
the company but not monkey with the board.
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