Glossary

Affiliate

a company over which another company or group has a holding equivalent to less than 50% of the capital but greater than 10%.

The ties between companies linked to one or more groups and the groups, upon which they depend, vary considerably in their closeness and complexity. There are many different variants. Even if most companies are subsidiaries of a single group, others are just affiliated to one or more groups, with a level of participation between 10% and 50%. In this case, the influence exercised by the group on an affiliated company is less strong than on a subsidiary. It depends on the percentage of the holding and the structure of the remaining share ownership. This influence will generally be limited to an option to block decisions. However, if there is a majority shareholder, the influence can be greater, as in the case of a position of strength created by a need for capital that the minority group may be capable of providing to the majority shareholder. Inversely, if there is not a majority shareholder, the influence exercised by the group on its affiliated company can potentially be endangered by a coalition of diffuse minority interests.

Business group

a group of companies placed under the authority of a single decision-making centre.

From a legal point of view, reference is made to the concept of a group via the law of 2 March 1989 regarding transparency, the royal decree of 30 January 2001 and the law of 2 August 2002 relating to the supervision of the financial sector and to financial services. In the royal decree, the control of a company is defined as the legal or factual power to exercise a decisive influence on the nomination of the majority of its directors or managers or on its management direction. Accounting law distinguishes different degrees of affiliation of a company to a group which are reflected in the way each company records its holdings in other companies and which it registers among the assets on its balance sheet under the item “Financial Assets”. This section is subdivided into three items: subsidiaries, companies where a participating relationship exists and other financial assets. As far as the responsibility of groups with regard to third parties (shareholders, creditors, and employees) is concerned, groups enjoy a de facto rather than a legal existence, with the law only recognising the companies which make them up and their representatives. This de facto existence enables groups to escape, to a large extent, all attempts by public authorities to regulate them.

In CRISP’s daily practice, a business group has come to mean a set of companies made up of legally separate entities between which there exists a network of links of a type which could place them, at least potentially, under the influence of the same decision-making centre. These links can often take the form of a network of financial holdings but can be reinforced or even replaced by personal, and, in particular, family links.

Competition

in a liberal economy, the basic organising principle of the market, aiming to prevent the abuse of dominant positions and which the public authorities ensure are respected.

Economic competition describes a situation in which several companies offering the same type of goods or services theoretically allow their potential customers – other companies or consumers – to choose their supplier freely and with full transparency, based on factors such as price or the quality of the product or service in question. According to economic theory, a market is said to be perfectly competitive when several conditions are respected, in particular: the atomicity of the buyers and sellers, the homogeneity of the products and perfect information. In reality, these conditions are only ever partially fulfilled.

That said, in a liberal economy, free competition is a basic organisational market principle which should be targeted. Public authorities try to ensure it is respected as effectively as possible. At a European level, competition policy (the limitation of monopolies, dumping practices, concentration in certain industries etc.) applies to all players in the internal market. Competition policy applies first of all to companies, in different ways depending on the industry. It involves anti-trust provisions regarding agreements, the decisions of business associations and concerted practices likely to reduce competition and also the abuses of dominant positions. It also aims to limit industry concentration at a European level, if companies merge which were formerly independent or in the case of direct or indirect acquisition. A second aspect of competition policy relates to state aid, normally forbidden but qualified by a broad range of exceptions. In Belgium, the Belgian competition authority promotes and attempts to ensure effective competition in Belgium and participates in the implementation of European competition policy. It applies the Belgian and European competition laws, examines restrictive competitive practices (price agreements, abuse of dominant power etc.), examines cases of economic concentration and can impose sanctions. Unfair competitive practices and acts that are contrary to honest commercial practice (loss-making sales, sales, public auctions, comparative advertising, distance contracts, liquidations) are the responsibility of the commercial courts.

These restrictive policies, which aim to encourage free competition, have a direct influence on company share ownership and its development.

Economic concentration

distribution of economic power among a small number of players.

This term describes a situation, the distribution of economic power among a small number of players (in particular the number and the size of the companies depending on the industry, which tends to reduce free competition). In addition, it describes an evolution, which has been ongoing since the Industrial Revolution, whereby the economy evolves from a competitive one with small companies to a monopolistic one with large companies, in an increasingly international environment. The development of economic concentration is an important feature of contemporary industrial societies.

Economic concentration is perceived differently by the different players. For entrepreneurs, the first priority is to position themselves on the market that concerns them, in relation to their competitors, particularly the market leaders, in order to increase their own share. For this purpose, they try to organise their manufacturing better and to use existing legal structures in their own best interest. Company employees experience economic concentration via restructurings and site closures, linked potentially to the transfer of activities to a different location and via the transition of employee relations that are typical of a small or medium-sized company to relations characterised by remoteness from the decision-making centres. (Their point of contact is less likely to be the real decision-maker). For public authorities, economic concentration is linked to economic policy considerations, in particular relating to planning, sector development, pricing policy, employment policy etc.

Economic concentration takes different forms, the main one of which is the structuring in business groups, and it is developing globally. Finally, economic concentration leads to ambivalent relations between the private sector and public authorities who care about the implications it has for different social players.

Holding company

a company that holds shares in the capital of other companies.

The holding company usually corresponds to the decision-making centre of the group and enables it to exercise influence or control over the strategy of the companies in which it holds shares. In addition, it provides them with the funds they need to grow. In this respect, it takes an intermediary role which is both financial and which redistributes funds within the group, depending on the development strategy and the cash requirements and surpluses of the subsidiaries or affiliates belonging to the group. It is compensated by the dividends it receives from the companies in which it holds shares. This form of company can sometimes be choosen for fiscal reasons.

Parent company (or “head of the group”)

the company which houses the decision-making centre of the group to which it belongs.

In most cases, a group’s parent company is the one which houses the decision-making centre at its heart. It is generally a holding company with a dual purpose: that of power centre and profit centre.

The parent company holds shares in the capital of other companies, with the latter also potentially holding shares in other companies in their own right. Linked to these shares is the power to vote at the companies’ shareholder meetings. It enables it to exercise influence or control over the strategy of the companies in which it holds shares. In addition, it provides them with the funds they need to grow. In this respect, it takes an intermediary role which is both financial and which redistributes funds within the group, depending on the development strategy and the cash requirements and surpluses of the subsidiaries or affiliates belonging to the group. It is compensated by the dividends it receives from the companies in which it holds shares. It is ultimately at parent company level that the redistribution of potential profits takes place, even if the floods of financial holdings which originate from this parent company include intermediary levels of participation in power and profit collection.  

For tax reasons and the opportunities which belonging to a large financial capital can bring, the parent company can be listed under a different nationality than the group to which it belongs.

Share ownership

group of owners (shareholders) of financial securities (shares) which make up a company’s capital.

The shareholders of a commercial company are its co-owners: the fact that they own part of this company’s capital gives them, as a group, a certain number of prerogatives with regard to this company. These prerogatives include patrimonial rights (the right to acquire, relinquish or pledge shares), a participation in the financial results of the company (dividends, distribution of the liquidating dividend) and a power of decision relating to the activities and strategy of the company and the appointment of its top management (for the exercise of which the shareholders have privileged access to information on the situation and progress of the company). They exercise these powers at the company shareholders meeting, with voting rights that are linked to their shares: generally, each share gives the right to one vote, but various mechanisms can allow additional voting rights to certain categories of shareholder. The objective of the shareholder meeting, which takes place at least once a year, is to approve the company’s annual accounts as presented by the board of directors, the distribution of the dividend, and the appointment or termination of the management. Broadly speaking, all decisions leading to a change in the articles of association of the company, such as capital-related operations (increases and reductions, the issue of convertible bonds etc.) and operations that change the company itself (a change in the company purpose and its headquarters, a merger, a demerger, a transfer of assets etc.) are the domain of the extraordinary general meeting, at which qualified majority voting prevails.

The shareholders can be physical persons, potentially members of the same family (family share ownership); other companies such as banks, insurance companies, pension funds and mutual funds which are grouped together under the term “Institutional Shareholders”; not for profit organisations or foundations; public authorities (sovereign states or funds, regions, provinces, municipalities). In many cases, several types of shareholder, whose interests otherwise diverge, coexist within the share ownership of a particular company.

The influence exercised by a shareholder depends above all on the percentage of his or her participation. The majority shareholder (who holds more than 50% of the voting rights) can impose his or her opinions on everyday management, but the law foresees for important decisions (dealt with during extraordinary general meetings) the use of qualified majority voting in order to protect minority shareholders of a certain size. The blocking minority which results from this is 25% in Belgium (30% in France) (see parent company, subsidiary, affiliate). Some shareholders, particularly those who hold the smallest amount of shares, choose not to exercise their prerogatives and act more like investors. This is notoriously the case of small private investors or institutional investors that make up part of the share ownership of companies quoted on the stock exchange. Some companies involve their employees in share ownership, whether they are part of senior management (stock options) or larger groups of employees and, in some cases, the entire workforce (employee share ownership), with the dual objective of retaining their people and stabilising their share ownership. In most large companies, more or less formalised agreements bind the shareholders to each other (members of the same family, allied companies etc.), sometimes for a fixed period of time, to share the control over it.

Nevertheless, various factors affect the real influence exercised by the shareholder on decision-making in the company: the financial health of the group to which the shareholder belongs, the structure of the overall share ownership of the company, the existence or otherwise of disagreements among the different shareholders regarding the strategy to follow etc. A number of particular scenarios are possible: a dispersed share ownership can allow a minority shareholder, but one who is clearly bigger than the others, to control the company or lead to a situation of self-control (by senior management) of the company; the state shareholder can legally reinforce its shareholder power (golden share) or, on the contrary, grant a certain amount of autonomy to its participating companies (autonomous public undertakings); foreign shareholders (particularly following mergers or acquisitions) can grant, at least for a certain period, a substantial degree of autonomy to their foreign subsidiaries.

The database underpinning this website attempts to take into account all possible scenarios.

Subsidiary

company over which another company or group exercises majority control.

Accounting law distinguishes different degrees of a company’s affiliation to another company or group, which are reflected in the way that each company accounts for the shares that it holds in other companies.

If majority control is being exercised over a company, which translates into more than 50% of the capital and/or more than 50% of the voting power, the company being controlled is said to be a subsidiary of another company or group. In this case, the group to which it belongs will always exercise its influence as a last resort, even if the group’s internal organisation, the type of business activities it is involved with, the financial profitability of the various subsidiaries can be reflected in a smaller or larger degree of management autonomy. As it holds more than 50% of the voting rights at the shareholders meeting, the group has the final say on the company’s important decisions such as the selection of board members, the level of profitability expected from the company, the use of profits, the amount of dividends issued and, if its participation exceeds 75% (a qualified majority in Belgium), the mergers and acquisitions, new share issues, the change of status of the company etc.