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Instructions:

Set work: Q9.5, Q9.11, Q9.13, E9.2, E9.4, E9.6, E9.8

Q9.5 Joint control judgement (Section 9.3.2)

AASB 131.3 defines joint control as follows:

. . the contractually agreed sharing of control over an economic activity and exists only when the strategic financial and operating decisions relating to the activity require the unanimous consent of the parties sharing control (the venturers).

AASB 11.7 states that

.. Joint Control is the contractually agreed sharing of control of an arrangement which exists only when the decisions about the relevant activities require the unanimous consent of the parties sharing control.

Accordingly, pursuant to AASB 131, joint control of an entity involves the power sharing of the entity by two or more parties. In particular, the important operating and financing decisions of the entity are undertaken jointly by these two or more parties. By contrast, unilateral control involves a situation where decision-making power ultimately rests with one party only.

In the case of Y Pty Ltd, it is probable that X Ltd, A Ltd and B Ltd will have joint control. Prima facie, no one entity will have control of Y Pty Ltd because the major decisions of the entity are likely to require the agreement of X Ltd and at least one of the other two shareholders.

There is likely to be a ‘shareholder agreement’ between the shareholders of Y Pty Ltd that sets out the rules for the internal government of the entity. For example, such an agreement could specify that certain decisions of Y Pty Ltd are subject to veto by any one of the three shareholders. In addition, the agreement could give the other shareholders ‘pre-emptive rights’ to acquire another shareholder’s interest should that other shareholder wish to exit its investment (known as a ‘buy out clause’).

It is possible that a shareholder agreement could exist between X Ltd, A Ltd and B Ltd that gave X Ltd defacto control over Y Pty Ltd. For...