ITPEC IP October 2021 Question 67
Which of the following is the appropriate combination of words and phrases to be inserted into blanks A and B in the description below, concerning companies of making and receiving investments?
Company C is making an investment in Company D. To increase its A Company D, Company C may B.
Explanation
A: control over, B: acquire additional stocks — buying more of Company D's shares raises Company C's voting rights and so its control over D.
A shareholder's say in a stock company follows the shares it holds: votes at the general meeting of shareholders elect the directors and decide major matters. Holding more than half of the voting rights usually makes D a subsidiary of C, and a smaller but significant stake (about 20% or more) makes D an affiliated company under C's influence. So to strengthen its control over D, C buys more of D's shares.
Answer (b)
Why not others:
- •(a) — selling part of its shares lowers C's voting rights, so its control over D weakens instead of increasing
- •(c) and (d) — dispatching auditors or directors to D does not change how many shares C holds, so neither can raise C's ratio of shareholding; only acquiring more shares does that
Key rule: Control over a company follows voting rights, and voting rights follow shareholding: more than half usually means a subsidiary, about 20% or more an affiliate.
Corporate Activities · AI-written, may contain errors
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