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A corporate group or group of companies is a collection of parent and subsidiary
corporations A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal context) and r ...
that function as a single economic entity through a common source of control. These types of groups are often managed by an account manager. The concept of a group is frequently used in
tax law Tax law or revenue law is an area of legal study in which public or sanctioned authorities, such as federal, state and municipal governments (as in the case of the US) use a body of rules and procedures (laws) to assess and collect taxes in a ...
,
accounting Accounting, also known as accountancy, is the measurement, processing, and communication of financial and non financial information about economic entities such as businesses and corporations. Accounting, which has been called the "languag ...
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 Conglomerate or conglomeration may refer to: * Conglomerate (company) * Conglomerate (geology) * Conglomerate (mathematics) In popular culture: * The Conglomerate (American group), a production crew and musical group founded by Busta Rhymes ** ...
. The forming of corporate groups usually involves consolidation via
mergers and acquisitions Mergers and acquisitions (M&A) are business transactions in which the ownership of companies, other business organizations, or their operating units are transferred to or consolidated with another company or business organization. As an aspec ...
, 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. The group may be owned by a
holding company A holding company is a company whose primary business is holding a controlling interest in the securities of other companies. A holding company usually does not produce goods or services itself. Its purpose is to own shares of other companies ...
which may have no actual operations. In Germany, where a sophisticated law of the " concern" has been developed, the law of corporate groups is a fundamental aspect of its corporate law. Many other European jurisdictions also have a similar approach, while
Commonwealth A commonwealth is a traditional English term for a political community founded for the common good. Historically, it has been synonymous with "republic". The noun "commonwealth", meaning "public welfare, general good or advantage", dates from the ...
countries and the
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continental United States, primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., ...
adhere to a formalistic doctrine that refuses to "
pierce the corporate veil Piercing the corporate veil or lifting the corporate veil is a legal decision to treat the rights or duties of a corporation as the rights or liabilities of its shareholders. Usually a corporation is treated as a separate legal person, which is ...
": corporations are treated outside tax and accounting as wholly separate legal entities.


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,
Salomon v Salomon is a landmark UK company law case. The effect of the House of Lords' unanimous ruling was to uphold firmly the doctrine of corporate personality, as set out in the Companies Act 1862, so that creditors of an insolvent company could not sue th ...
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. * '' Berkey v Third Avenue Railway''


Economic dependence

*
Concern (business) A concern (german: Konzern) is a type of business group common in Europe, particularly in Germany. It results from the merger of several legally independent companies into a single economic entity under unified management. A concern consists of ...
* '' DHN v Tower Hamlets LBC'' * EU Seventh Company Law Directive 83/349, on group accounts * EU Draft Ninth Company Law Directive, on
corporate groups A corporate group or group of companies is a collection of parent and subsidiary corporations that function as a single economic entity through a common source of control. These types of groups are often managed by an account manager. The concept ...


Law


Accounting

* EU Seventh Company Law Directive 83/349, on group accounts


Civil law

* ''
Salomon v Salomon is a landmark UK company law case. The effect of the House of Lords' unanimous ruling was to uphold firmly the doctrine of corporate personality, as set out in the Companies Act 1862, so that creditors of an insolvent company could not sue th ...
'' * '' Berkey v Third Avenue Railway'' * '' Adams v Cape Industries plc''


Codetermination

*
Mitbestimmungsgesetz Mitbestimmungsgesetz 1976 or the Codetermination Act 1976 is a German law that requires companies of over 2000 employees to have half the supervisory board of directors as representatives of workers, and just under half the votes. Background From ...


Definition

Leff 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. The relationship between the firms in a group may be formal or informal.Granovetter, M. (1994). “Business groups,” in ''The Handbook of Economic Sociology'' (J. N. Smelser and R. Swedberg, Eds.), pp. 453–475,
Princeton University Press Princeton University Press is an independent publisher with close connections to Princeton University. Its mission is to disseminate scholarship within academia and society at large. The press was founded by Whitney Darrow, with the financial ...
, Princeton.
A
keiretsu A is a set of companies with interlocking business relationships and shareholdings. In the legal sense, it is a type of informal business group that are loosely organized alliances within the social world of Japan's business community. The '' ...
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
keiretsu A is a set of companies with interlocking business relationships and shareholdings. In the legal sense, it is a type of informal business group that are loosely organized alliances within the social world of Japan's business community. The '' ...
. Taiwanese and Chinese groups exhibit similar features. Horizontal business groups are also referred to as ''associative business groups''. A vertical business group is a group of companies controlled, but not entirely owned, by a single investor. Vertical groups are often organized as pyramids of companies controlled by the main investor through a holding company. A unique feature of pyramidal holdings is that it allows the main investor to exert control with a limited amount of capital. Korean
chaebols A chaebol (, ; ) is a large industrial South Korean conglomerate run and controlled by an individual or family. A chaebol often consists of multiple diversified affiliates, controlled by a person or group whose power over the group often exc ...
,Indian business houses and most European business groups are vertical in character. Vertical business groups are also referred to as ''hierarchical business groups''. Encarnation refers to Indian business houses, emphasizing multiple forms of ties among group members. Powell and Smith-Doerr state that a business group is a network of firms that regularly collaborate over a long time period. Granovetter argues that business groups refers to an intermediate level of binding, excluding on the one hand a set of firms bound merely by short-term alliances and on the other a set of firms legally consolidated into a single unit. Williamson claims that business groups lie between markets and hierarchies; this is further worked out by Douma & Schreuder. Khanna and Rivkin suggest that business groups are typically not legal constructs though some regulatory bodies have attempted to codify a definition. In the
United Arab Emirates The United Arab Emirates (UAE; ar, اَلْإِمَارَات الْعَرَبِيَة الْمُتَحِدَة ), or simply the Emirates ( ar, الِْإمَارَات ), is a country in Western Asia (Middle East, The Middle East). It is ...
, a business group can also be known as a
trade association A trade association, also known as an industry trade group, business association, sector association or industry body, is an organization founded and funded by businesses that operate in a specific industry. An industry trade association partic ...
.Abudhabichamber.ae
Typical examples are
Adidas Group Adidas AG (; stylized as adidas since 1949) is a German multinational corporation, founded and headquartered in Herzogenaurach, Bavaria, that designs and manufactures shoes, clothing and accessories. It is the largest sportswear manufacturer ...
or Icelandair Group.


See also

* Business alliance *
Chaebol A chaebol (, ; ) is a large industrial South Korean conglomerate run and controlled by an individual or family. A chaebol often consists of multiple diversified affiliates, controlled by a person or group whose power over the group often exc ...
* Concern *
Conglomerate Conglomerate or conglomeration may refer to: * Conglomerate (company) * Conglomerate (geology) * Conglomerate (mathematics) In popular culture: * The Conglomerate (American group), a production crew and musical group founded by Busta Rhymes ** ...
*
Holding company A holding company is a company whose primary business is holding a controlling interest in the securities of other companies. A holding company usually does not produce goods or services itself. Its purpose is to own shares of other companies ...
*
Keiretsu A is a set of companies with interlocking business relationships and shareholdings. In the legal sense, it is a type of informal business group that are loosely organized alliances within the social world of Japan's business community. The '' ...
*
Subsidiary A subsidiary, subsidiary company or daughter company is a company owned or controlled by another company, which is called the parent company or holding company. Two or more subsidiaries that either belong to the same parent company or having a ...
*
Zaibatsu is a Japanese term referring to industrial and financial vertically integrated business conglomerates in the Empire of Japan, whose influence and size allowed control over significant parts of the Japanese economy from the Meiji period unt ...
*
Multinational corporation A multinational company (MNC), also referred to as a multinational enterprise (MNE), a transnational enterprise (TNE), a transnational corporation (TNC), an international corporation or a stateless corporation with subtle but contrasting senses, i ...


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)


Notes

{{Authority control Business terms Strategic management Corporate groups Corporate development