Define Subsidiary Agreements

6. Dezember 2020

Note that, as part of the contract between the parties, the contractual definition of the subsidiary takes precedence over a legal definition. In other words, using the same terminology, a contract draftsman may well intend to take a different approach. Therefore, do not try to correct the other party`s counsel in the design of a term that is also defined differently under existing legislation (unless you want to impose another standard in the contract). As a general rule, the key question is whether a lower level of „control“ over the other party`s companies may or may not benefit from the agreement (or vice versa, whether „uncontrolled“ own companies are subject to contractual restrictions within the group structure of a party). Let us first consider a relatively simple case, the term subsidiary. This newsletter from Edwards Angell Palmer and Dodge on the ACC Newstand describes how in American Electric Power Co. v. Affiliated FM Insurance Co., No. 07-31061, 2009 U.S. App.

LEXIS 1056 (5th Cir. 21 Jan 2009), the Fifth Circuit upheld a district court decision that states that coverage for „subsidiaries“ does not normally cover limited liability companies. Control may be directly (for example.B. a parent company directly controls the subsidiary of the first animal) or indirectly (z.B. an ultimate parent company indirectly controls the second and lower level of the subsidiaries through first-tier subsidiaries). The term „control“ and its derivatives (subsidiary and parent company) may have different meanings in different contexts. These terms may have different meanings in different legal areas (for example. B corporate law, competition law, capital market law) or accounting. For example, If Company A acquires shares in Company B, it is possible that the transaction will not be subject to merger control (because Company A has already been considered a controlling company of Company B prior to the purchase of shares in accordance with competition rules), but at the same time, Company A may also be required to undertake the consolidation of Company B in accordance with the relevant accounting rules (because it had been treated as a joint venture prior to the purchase for accounting purposes).