Concept of Control in Consolidations

Concept of Control in Consolidations

In countries like Japan, the concept of control is mostly used to define the scope of a group company. However, unlike other regions, the theory of combined control does not apply. Control only applies in purposes like the substantive review where if a share acquisition exceeds a certain set limit and an individual becomes the highest shareholder, the acquirement becomes subject to an examination by the trade commission. However, the Japanese system insists on the avoidance of the word control and insists that; when two parent corporations each holds 50 % share and an equal number of board members, then neither company can be in control of the business venture in question.

The Japanese most common form of grouping is the Keiretsu which refers to groups of individuals or significant firms who maintain their independence by not operating under the confines of the law. They are associations born from natural historical and social relationships. This type of structure poses difficulty during the identification of legal ownership arrangements since their financial statements do not comprehensively reflect the activities of the business relationships.

In light of this, the interpretation of these statements might prove cumbersome at best or, impossible at worst due to the incompatibility between the international standards and those of the country in question, like Japan in this instance. Most of these countries only adopt these standards as a response to excessive international pressure. Japan, implemented these principles decades after other industrialized countries and it still struggles in matching its culturally accepted methods with those imposed on it by external factors. In the keiretsu setting, companies may own up to 10% each other’s’ shares, but none may possess voting rights over another. While adopting international consolidation standards is vital, it is of more significance that these countries merge them carefully with their cultural settings to ensure that these statements become useful (Nobes, 2014).



Nobes, C. (2014). The development of national and transnational regulation on the scope of consolidation. Accounting, auditing & accountability journal27(6), 995-1025.