Control Under explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Control is the single test that decides who consolidates whom under Ind AS 110. It is not a percentage. An investor controls an investee when it has power over it, is exposed to variable returns from it, and can use the power to affect those returns. All three are needed, and all facts are weighed.
Ind AS 110, paragraph 7 says an investor controls an investee if and only if it has (a) power through existing rights over the relevant activities, (b) exposure or rights to variable returns, and (c) the ability to use its power to affect those returns. Only substantive rights count; protective rights give no power. Potential voting rights count if substantive. A decision maker that acts as an agent does not control. Control is reassessed when any element changes.
Ind AS as on 1 April 2025 (ICAI Compendium of Ind AS 2025-26, the standards notified under the Companies (Indian Accounting Standards) Rules, 2015). Amendments notified after 1 April 2025 are not reflected in this article; check mca.gov.in before applying it to a later period.
What the paragraphs require
| Paragraph | Requirement | What it means in practice |
|---|---|---|
| Ind AS 110, 5 to 7 | Assess control regardless of the form of involvement; three elements, all required | A holding percentage alone never settles the question |
| 8 and B80 | Consider all facts; reassess when any element changes | Control is not fixed at acquisition |
| 9 | Joint direction of relevant activities means no single investor controls | Joint arrangements go to Ind AS 111 |
| 10 to 14, B9 to B13 | Power is the current ability to direct the activities that significantly affect returns | Find the relevant activities first |
| B22 to B25 | Only substantive rights count; barriers can make a right non-substantive | A right that cannot practically be exercised is ignored |
| B26 to B28, 14 | Protective rights give no power | A holder of only protective rights never has power |
| B35 to B37 | A majority of votes gives power only if the votes are substantive and no one else directs | A majority can lack power |
| B41 to B46 | With less than a majority, power needs practical ability to direct unilaterally; if unclear, no control | Size, dispersion, voting history and agreements all matter |
| B47 to B50 | Substantive potential voting rights are considered | Options, convertibles and forwards |
| 15 and 16 | Returns can be positive, negative or both | Fees, dividends, residual risk |
| 17, 18, B58 to B72 | Principal or agent: scope, others' rights, remuneration, other interests | An agent does not control |
Step 1: identify the relevant activities
Paragraph B11 lists selling and buying, managing financial assets through their life including default, selecting and disposing of assets, research, and funding as examples. Paragraph B13 notes that activities before and after an event can both be relevant, so find who directs the activity that matters most. Look at the purpose and design of the investee (B5 to B8).
Step 2: test the rights
Voting rights decide in the simple case (B6). Consider whether others hold rights that block decisions without being able to start them (B25), whether the investor's votes are substantive (B36, B37) and whether any contract adds or removes decision-making (B40). Economic dependence alone does not create power (B40). For a holding below 50 per cent, the question under B41 is whether the investor has the practical ability to direct unilaterally; weigh holding size and dispersion, potential voting rights, other contracts and voting patterns (B42), and if the picture is unclear, the answer is no control (B46).
The Companies Act has its own definition of subsidiary and holding company, which does not match Ind AS 110 point for point; see our post on holding, subsidiary, associate and control.
Diligence on a target usually needs this analysis before signing, not after. Our financial and legal due diligence team reads the shareholders' agreement and articles with the control tests in mind.
Step 3: returns and the link
Variable returns can be dividends, fees, exposure to losses and residual interests (paragraphs 15 and 16). The link in paragraphs 17 and 18 requires an investor with decision-making rights to establish whether it is acting for itself or as an agent for others. The four factors in B60 are weighted on the facts. Under B61 and B65, if a single party holds substantive rights to remove the decision maker without cause, that alone settles agent status. The remuneration must be commensurate and on customary terms, and meeting those conditions alone does not make a decision maker an agent (B69, B70).
Worked cases
The entity and all figures in this example are invented for illustration. The five cases are separate, each judged on its own facts, and each is a conclusion on the facts as assumed.
| Case | Facts (assumed) | Paragraph | Conclusion |
|---|---|---|---|
| 1. Majority but blocked | Cauvery Engineering Limited holds 54 per cent of Hemavati Castings Limited. A shareholders' agreement requires the 46 per cent holder's consent for the annual budget and the appointment of the chief executive, who runs the plant. | B22, B25, B36 | No power. The 46 per cent holder's rights are substantive and cover decisions about the relevant activities, so the 54 per cent holder does not control. Consider Ind AS 111 if both must agree. |
| 2. Minority with substantive options | Krishna Pharma Limited holds 38 per cent of Palar Labs Limited. One other holder has 37 per cent and the rest is dispersed. Krishna holds options, exercisable at any time at a price below the current market price, over a further 14 per cent. | B47 to B50, B23 | Power. Options are substantive: exercise price is no barrier, exercise is possible at any time and Krishna would reach 52 per cent. Krishna controls. |
| 3. Majority with a veto that is protective | Tungabhadra Foods Limited holds 60 per cent of Sharavati Dairies Limited. The 40 per cent holder can veto a change of the business line, an issue of shares that dilutes it, and a liquidation. | 14, B26 to B28 | Power. These are protective rights; they give the 40 per cent holder no power and do not stop Tungabhadra directing the relevant activities. |
| 4. Fund manager as agent | Indravati Asset Managers Limited manages Mahi Debt Fund for a fee of 1 per cent of assets, with a 3 per cent holding of units. An independent trustee can remove the manager without cause. | B58, B61, B65, B68 to B72 | Agent. A single party's substantive removal right without cause is, in isolation, enough (B65). Indravati does not control the fund. |
| 5. Structured entity run by contract | Ponnaiyar Receivables Trust holds a pool of loans. Its voting units carry only administrative rights. The relevant activity is managing loans that default, directed under contract by the sponsor, Sabarmati Finance Limited, which also holds the first-loss tranche. | B8, B11(b), B13, 15 | Control. Power comes from the contract over the activity that most affects returns, the first-loss tranche gives exposure to variable returns, and the sponsor is a principal. |
How to document a conclusion
Write the three elements in order and for each one the evidence, the paragraph and the weight given. Record why rights are substantive or protective, the voting history if used, and any agent analysis under B60. Date the assessment. When facts change, such as a lapse of a veto right, a new shareholder agreement or the end of a fee contract, redo it (B80 to B84). A change in market conditions alone does not trigger reassessment (B85).
Presentation and disclosure
A parent consolidates from the date it obtains control until it loses it (paragraph 20); the procedure is in our guide to consolidation procedure. Where control is not found, the equity method in the Ind AS 28 guide or Ind AS 109 may apply. Disclosure of significant judgements about control is under Ind AS 112. The standard's own outline is in our Ind AS 110 post.
Common mistakes
- Treating 51 per cent as automatic control without testing substantive rights (B36).
- Treating every veto as power; protective rights give none (B26, B27).
- Ignoring options and convertibles that are currently exercisable at a sensible price (B47, B50).
- Concluding "principal" from the size of the fee without the removal-right test (B61, B65).
- Failing to reassess after a shareholder agreement changes (B80, B81).
Need help with control assessment?
Control conclusions drive whether a company consolidates, uses the equity method or records an investment, so they are worth settling before a deal closes. Our financial and legal due diligence team can map the rights in your agreements to the three elements and prepare the written conclusion for audit.
Key takeaways
- Control needs power, variable returns and the link between them, all three.
- Only substantive rights count; protective rights never give power.
- A majority may lack power, and a minority may have it.
- Substantive potential voting rights are included.
- An agent does not control; a single substantive removal right without cause settles agency.
- Reassess when facts change, not when markets do.
Read next
- Consolidation procedure under Ind AS 110: goodwill, NCI and elimination of intra-group items
- The equity method under Ind AS 28
- Company relationships explained: holding, subsidiary, associate, control
- Is a subsidiary's associate also an associate of the holding company
Disclaimer: Based on the Indian Accounting Standards as on 1 April 2025 (ICAI Compendium of Ind AS 2025-26, the standards notified under the Companies (Indian Accounting Standards) Rules, 2015) and, where named, the ITFG clarification bulletins of ICAI, as consulted on 4 October 2026. The worked example uses invented figures. Amendments notified after 1 April 2025 should be checked on mca.gov.in. This article is general information, not legal advice; check the official text before acting.