A corporate group (or a "group of companies") is a collection of parent and subsidiary corporations that function as a single economic entity through a common source of control. The concept of a group is frequently used in tax law, accounting and (less frequently) company law to attribute the rights and duties of one member of the group to another or the whole. If the corporations are engaged in entirely different businesses, the group is called a conglomerate.
In Germany, where a sophisticated law of the "concern" has been developed, the law of corporate groups is a fundamental aspect of its corporate law. Many other European jurisdictions also have a similar approach, while Commonwealth countries and the United States adhere to a formalistic doctrine that refuses to "pierce the corporate veil": corporations are treated outside tax and accounting as wholly separate legal entities.
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Main articles: Separate legal personality and Piercing the corporate veil |
The definition of business group varies. For instance, Leff[1] defines business group as a group of companies that does business in different markets under common administrative or financial control whose members are linked by relations of interpersonal trust on the bases of similar personal ethnic or commercial background a business group. One method of defining a group is as a cluster of legally distinct firms with a managerial relationship.[2][3] The relationship between the firms in a group may be formal or informal.[4] A keiretsu is one type of business group. A concern is another.
Encarnation[5] refers to Indian business houses, emphasizing multiple forms of ties among group members. Powell and Smith-Doerr[6] state that a business group is a network of firms that regularly collaborate over a long time period. Granovetter[4] argues that business groups refers to an intermediate level of binding, excluding on the one hand a set of firms bound merely by short-term alliances and on the other a set of firms legally consolidated into a single unit. Williamson[7] claims that business groups lie between markets and hierarchies. Khanna and Rivkin[8] suggest that business groups are typically not legal constructs though some regulatory bodies have attempted to codify a definition. In United Arab Emirates, a business group can also be known as a trade association.[9] Typical examples are Adidas Group or Icelandair Group.