Controlling interest

What it means

A controlling interest is a share of voting rights that allows its holder to decide company matters. It is usually a majority of votes, but control can also come from a smaller stake if it is backed by an agreement with other shareholders or if the remaining shares are widely dispersed.

The holder of a controlling interest becomes the parent company and the controlled company its subsidiary. It can appoint and remove the statutory body, approve the financial statements and profit distribution, and set the company's strategy, unless the law or the statutes require a qualified majority.

For some decisions, such as amending the memorandum or increasing registered capital, the law requires a two-thirds majority. A shareholder with more than a third of the votes therefore holds a blocking minority, and a controlling interest below two thirds does not give complete freedom.

How it works in practice

Gaining control has accounting consequences. A parent company that exceeds the size criteria must prepare consolidated financial statements, and the subsidiary discloses information about its ultimate parent and intra-group transactions in the notes.

For tax purposes, controlled and controlling companies are related parties. Prices between them must reflect market terms under the transfer pricing rules, and for some transactions transfer pricing documentation must be kept.

In companies listed on a stock exchange, acquiring control triggers a mandatory takeover bid to the other shareholders. In Slovakia the control threshold for this purpose is set by the Securities Act at one third of the voting rights.

What to watch out for

A controlling shareholder must have regard to the company's interests, not just its own. If it uses the company to the detriment of minority shareholders or creditors, for example through unfavourable contracts with its own businesses, it may face lawsuits and, in insolvency, liability for damage.

Control can also be acquired indirectly, through a chain of companies or voting agreements. For beneficial ownership registers and related-party rules, the entire ownership structure is therefore examined, not just the direct stake in a single company.