Understanding Holding Companies, Subsidiaries, and Associated Companies
Holding Company
An investment holding company owns permanent investments in shares of another company. The acquiring company becomes a holding company when it has more than 50% of outstanding shares with voting rights, thus becoming the controlling entity of the subsidiary.
Reasons for Creating or Developing Groups
- To acquire subsidiaries that produce raw materials or parts, ensuring a favorable price and a reliable supply chain.
- To achieve tax advantages as separate legal entities, each company pays taxes on its own profits, reducing overall tax burden.
Advantages of Financial Planning and Development
- Financial Support: Holding companies provide greater access to funding and better negotiation power for interest rates and loan terms.
- Resource Channeling: Financial resources can be efficiently distributed among the companies within the group.
- Balanced Growth: Applying financial resources across the group fosters healthier and more balanced growth.
Control
Control refers to the power to govern the financial and operating policies of an enterprise to benefit from its activities. Control is established when a company owns, directly or indirectly, more than 50% of the outstanding shares with voting rights of another company.
Shares (Stocks)
Shares represent the holder’s rights and obligations in relation to their proportion of ownership in the company.
1. By Exhibition
A) In Cash
Cash capital stock shares are exhibited in cash.
B) In Kind
Shares of capital in kind are covered in whole or in part by assets other than cash.
2. By Title
A) Nominative (in Mexico)
Nominative shares display the name of the shareholder.
B) To the Bearer (Abroad)
Bearer shares do not display the shareholder’s name and are typically used overseas.
3. By the Number of Shares Each Title Covers
A) Simple
A simple title represents a single share.
B) Multiple
A multiple title represents two or more shares.
4. By Payment Method
A) Released
Released shares have been fully paid for.
B) Paying
Paying shares have not been fully paid for; shareholders still owe payment.
5. By Rights Conferred
A) Ordinary
Ordinary shares grant standard rights and obligations as defined in the company’s bylaws.
B) Privileged
Privileged shares confer special rights beyond those of ordinary shares. These can include:
- 1. Preferred Shares: Holders receive priority dividends over ordinary shareholders.
- 1.1 Cumulative: Unpaid dividends accumulate and are paid out in future years.
- 1.2 Non-cumulative: Unpaid dividends do not accumulate.
- 1.3 Convertible: Can be converted into ordinary shares under specific conditions.
- 1.4 Non-convertible: Cannot be converted into ordinary shares.
- 1.5 Participating: Shareholders participate in extra dividends beyond the fixed preferred dividend rate.
- 2. Non-Preferred Shares
- 3. Limited Vote Shares
6. Par Value
No Par Value
Shares with no par value do not have a designated monetary value printed on the stock certificate.
B) Shares Not Representing Share Capital
- 1. Stock Certificates of Enjoyment: Registered securities that do not represent share capital, issued when shares are redeemed. They may provide dividends to their owners.
- 2. Founder’s Shares or Bonds: Registered securities granted to founders, officials, or key personnel. They may yield interest not exceeding 10% of annual net profits.
- 3. Job Actions: Registered securities typically granted to employees, potentially yielding profits as determined by the general shareholder assembly.
C) Preferred Stock
Article 113 of the LGSM (General Law of Commercial Companies in Mexico) grants preferred stock with limited voting rights a 5% dividend, allocated before ordinary shares. Unpaid or dividends below 5% are covered in subsequent years.
D) Common Shares
Common shares grant holders standard rights and obligations, including voting rights in ordinary and extraordinary assemblies, electing the board of directors, and voting on company matters. They also have priority rights to purchase additional shares.
Social Parties (Partnerships)
According to its Contents
- Cash
- In Kind
For the Right to Confer
- Ordinary
- Privileged – Preferred – Useful – Participatory – Convertible – Cumulative – Limited Voting
Payment Form
- Released
- Payable
Value
- Value of 100
Social partners represent the portions into which a partnership’s capital is divided. They encompass the rights and obligations of a member within the company.
Subsidiary
A subsidiary is a company controlled by another company, known as the parent company.
Associate
An associate is a company in which the parent company holds significant influence in its administration but does not have full control.
Significant Influence
Significant influence refers to the power to participate in the financial and operating policy decisions of a company without having full control over those policies.
Affiliates
Affiliates are companies that share common shareholders or joint administration to a significant degree.
Consolidated Financial Statements
Consolidated financial statements represent the combined financial results and position of a parent company and its subsidiaries, as if they were a single entity.
Minority Interest
Minority interest represents the portion of profit or loss and equity in consolidated subsidiaries attributable to shareholders outside the controlling company.
Combined Financial Statements
Combined financial statements represent the financial condition, results of operations, and changes in financial position of affiliated companies as if they were a single entity.
Data Stock Certificates
- Name, Nationality, and Shareholders
- Denomination, Address, and Duration of the Company
- Date of Incorporation and Public Registry of Commerce Entry
- Amount of Capital, Total Number, and Nominal Value of Shares