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16th January, 2014

Group of Companies May Be Single Economic Entity


When a subsidiary in a group of companies does something, what is the legal position of the holding company that owns the subsidiary?

In some circumstances, the courts might hold the parent company responsible for the actions of the subsidiary – especially if the subsidiary does not conduct its business and make decisions independently of the parent company.

Where the companies constitute, in effect, a ‘single economic unit’, the courts may treat them as a single entity. The same reasoning applies where a joint venture is formed with two companies each owning a 50 per cent interest in the joint venture company.

That reasoning led to a failure by a large chemical company to avoid sanctions imposed by the European Court of Justice for a breach of EU competition law. Two companies held equal shares in a joint venture company and had set up a members’ committee to supervise its business. Both companies were held jointly and severally liable for the JV’s anti-competitive conduct as they had exercised, through the members’ committee, decisive influence over its conduct on the market.

 

 



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