What is an associated company?

Sometimes it was simply referred to as a collaborator, an associated company is a company that is very interested in another company, but it is not enough to actually have control of this company. In general, the enterprise can be considered from an accounting point of view if interest exceeds 20%but is less than 50%. If the interest amount held by the associated company exceeds 50%at a certain point, the partner is no longer considered to be an associated but control party.

Defining an associated company is very important in terms of accounting. Since a collaborator is not considered a fully consolidated business entity, it means that profits and losses are recorded separately in business records, rather than including details of the profit and loss of the main company. Therefore, it is in the group balance sheet that is created when companies work together on a joint enterprise, detail for each entity is presented as separate order items, although the total detail found in rThe echo can be considered as one investment.

While the concept of associated companies is found worldwide, local traditions and business regulations have an impact on how this accounting process document this type of business relationship. The equity method is often used to monitor the investment activity. This means that the items into financial records consider dividends to be a return on capital. As a result, dividends may not be recognized as income from its own capital in the investor's profit statement.

The identification of legal status as an associated society is also important during mergers and acquisitions. This is because understanding the amount of interest that every associate has is extremely important for those who seek to obtain a given business, either as a new investment or with plans to merge this business with companies already owned by future buyers. Interest of eachThe co -worker must be considered as details that protect interests and thus ensure the loyalty of these collaborators.

In practical operation conditions, recognition of greater interest of the associated company is very important for the company that has issued shares. Cultivation of strong ties with investors who have more than 20% interest usually facilitates obtaining permits and consent if it is necessary to settle matters for the future of the business that are of deep importance. This is especially true in the face of the enemy attempt to take over, because the main investors can often determine whether this offer is eventually successful.