[Opinion] The Control Conundrum – An Analysis of Control Under Ind AS 110

CA Dhrumi Shah – [2026] 185 taxmann.com 99 (Article)

Professionals today are encountering business combinations which are complicated and multi-layered and where assessment of control through traditional method fails to unveil the true controller of the undertaken entity. The bridge between emerging business structure and conventional definitions is filed by the three-step assessment model of Ind AS 110 where evaluation of control is focused on aspects such as who has the power, rather than who owns majority shares. This article will aid professional to dissects the definition of control and power under Ind AS 110.

1. The 51% Fallacy – Why the Share Register is No Longer Your Safe Harbor

For decades, the determination of control was a relatively mechanical exercise. A voting interest exceeding 50%, or the authority to appoint a majority of the board, and the question was settled. This worked well enough when business structures were straightforward. But the landscape has changed considerably and with it, the professional obligation to look through a microscope.

Modern organisational arrangements such as SPVs, optionally convertible instruments, layered equity, shareholder agreements with asymmetric rights have made simple arithmetic an unreliable proxy for definition of control. Ind AS 110 was introduced precisely to address this gap and applying it well requires professional judgement in situations where the economic reality of control diverges sharply from its legal form.

2. Is Control Limited to >50% Stake?

Both the AS 21 and the Companies Act, 2013 define control through the lens of voting rights more than 50%, directly or indirectly, and the entity qualifies as a subsidiary. The definition is rule bound and, in straightforward structures, entirely adequate. The problem arises when economic reality refuses to stay within those rules.

Let us evaluate this by a case study – a landowner and a developer incorporate a Company for a residential project. The landowner contributes the land and holds 55% equity; the developer holds 45%. However, the development agreement states that the developer has exclusive authority over construction timelines, contractor appointments, pricing strategy, and customer negotiations. The developer also receives a development management fee plus a performance-linked share of revenues. Under AS 21, the landowner consolidates the Company. Under Ind AS 110, the question is considerably less settled and the standard asks a key question of who controls the Company. This is precisely the terrain that Ind AS 110 was designed to navigate.

3. The Philosophy Behind Ind AS 110 – Direction Over Ownership

Ind AS 110 doesn’t limit itself to the questions of ownership but also focuses on assessing who directs the relevant activities. The standard’s departure from its predecessors is conceptually fundamental – control as per of Ind AS 110 exists when all the three conditions are satisfied i.e. an investor has power over the investee, is exposed to variable returns from its involvement, and can use that power to affect those returns. Each element is necessary, but none is sufficient.

Footnote – Paras 7–8 of Ind AS 110 specify the three elements of control – power, variable returns, and linkage between the two.

The standard expands its scope of parent (entity who controls another entity) by mentioning investor as regardless of the nature of its involvement with an entity investor should assess whether they control the investee; therefore it is not limited to equity shareholders. A preference shareholder, a lender with embedded conversion rights, or a counterparty whose influence arises from contract can each establish control if the three criteria are met.

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