Question

Why do you think that managers of a firm need to know the differences among control, significant influence and joint control?

Justify your answer.

Answer 1

Managers of the firm need to know about differences among control along with significant influence and joint control because control is related to absolute control of the another entity and it is reflected that almost more than 50% of the voting rights of other company is held by the parent company or more than 50% of the board of directors of other company is controlled by the company so it is reflecting an absolute control over the decision making of the subsidiary by the parent.

Significant influence is reflecting that the overall influence of the company which can be done by holding more than 20% of shares of the another company and it is not reflecting the control of other company because the control on other company is not achieved by the company by having just 20% of the shares so it can influence the decision making of the other company and it is a substantial stakeholder.

When we are looking at a joint control then the company is controlling the other company with more than 25% of the stake in other company and it is controlling the other company with other parent of the company so it is reflecting the joint control over particular company.

Hence, it can be said that there is a significant difference between control along with significant influence and joint control because it will be affecting the overall decision making of various managers and managers are also needing to segregate their overall management approach in regards to different companies upon which the company has control or significant influence or joint control.