Importance of registering the situation of control

The Superintendence of Companies announced in a press release dated May 3rd, 2023 the filing of charges against Mr. William Shaw for the alleged violation of the regime of parent companies and subsidiaries, by not disclosing before the commercial registry the situation of control that apparently he holds over Ultra Air S.A.S. and Inversions Shaw S.A.S.

This decision reiterates the relevance of validating and registering possible situations of control since, once configured, it must be registered within the following 30 days. This obligation seeks to guarantee, among others, transparency in the market and the prompt identification of possible conflicts of interest.

Section 260 of the Colombian Code of Commerce states that "a company will be subordinated or controlled when its decision-making power is subject to the will of another or other persons". Although this description may generate interpretations and discussions in specific cases where the existence of the "subordination" referred to in the rule is not clear, the legislation, case law and doctrine have established specific assumptions that could indicate the existence of situations of control and the corresponding obligation to register it, some examples of which are as follows:

1. When more than 50% of the capital stock belongs to the same shareholder.

2. When the parent company and the subordinate companies jointly or separately have the right to cast votes that represent the majority of the votes in the shareholders' meeting or have sufficient votes to elect the majority of the members of the Board of Directors, if any.

3. When the parent company, directly or through or with the assistance of the subordinates, by reason of an act or business with the controlled company or with its shareholders, has a dominant influence in the decisions of the management bodies of the company.

The Superintendence of Companies and the doctrine have emphasized that the described scenarios are not the only ones in which situations of control could be configured and the occurrence of one of them is not a sufficient criteria to consider it as a control situation, it is necessary to perform a detailed analysis in each specific case to determine whether the decision-making power of a company is effectively subject to the will of another person in the capacity of controlling entity.

Likewise, it is important to mention that the configuration of the situation of control previously mentioned, could lead to the existence of a business group, provided that the unity of purpose and direction is verified.

Penalties for not registering the situation of control before the Commercial Registry

Failure to register the control situation may be sanctioned by the Superintendence of Companies with fines of up to 200 legal monthly minimum wages, based on Section 30 and in accordance with numeral 3 of Section 86 of Law 222 of 1995.

Likewise, it may generate joint and several liability of the manager who omitted the registration of the control, being liable with his personal wealth for the damages that such omission may generate to the company and to third parties.

Some obligations and effects arising from the situation of control

  • Obligation to report consolidated financial statements.
  • Verification of transactions between related companies.
  • Subsidiary liability of the parent or controlling company.
  • Withholding tax does not apply to the payment of dividends.

Therefore, due to the implications of this situation, it is important that the directors verify if the company is whether a parent or subsidiary company to make the corresponding records.