Significant Influence and Related Party Under Ind AS for Minority Investors

This document analyses whether a shareholder holding 9% equity in a company and possessing one seat on the Board of Directors qualifies as an associate under Ind AS 28 and whether transactions with such a shareholder fall within the scope of related party transactions under Ind AS 24.

1. Key Issues Examined

• Whether the shareholder should be classified as an “associate” under Ind AS 28
• Whether transactions with the shareholder should be disclosed as related party transactions under Ind AS 24
• Whether significant influence exists, based on:

1. 1. Shareholding level (9%)
   2. Board representation (1 out of total directors)
   3. Other indicators, including:

• • • Participation in policymaking
    • Material transactions
    • Interchange of managerial personnel
    • Provision of essential technical or management services

2. Ind AS 28 – Determining Significant Influence

Under Ind AS 28 – Investments in Associates and Joint Ventures, an “associate” is an entity over which the investor has significant influence, defined as the power to participate in financial and operating policy decisions, but not control or joint control.

While a 20% shareholding is generally presumed to indicate significant influence, a lower holding—such as 9%—may still indicate influence when combined with board representation or active participation in policymaking.

Thus, the presence of a board seat, depending on the company’s governance structure and decision-making patterns, could be sufficient to establish significant influence, qualifying the shareholder as an associate.

3. Ind AS 24 – Related Party Relationships

According to Ind AS 24 – Related Party Disclosures, related parties include entities that:

• Have control or joint control over the reporting entity
• Have significant influence over the reporting entity
• Are key management personnel or provide such personnel

If the shareholder is determined to have significant influence, transactions with them would be classified as related party transactions requiring disclosure in the financial statements.

Additionally, provision of key management personnel services, either directly or through entities they control, would further support this classification under Ind AS 24.

4. Conclusion

• If the board seat provides participatory rights in financial and operating policy decisions, the shareholder may be classified as an associate under Ind AS 28.
• Consequently, transactions with such a shareholder may need to be treated as related party transactions under Ind AS 24, subject to disclosure requirements.

Each case must be assessed based on facts and substance of the relationship, rather than merely on shareholding percentage.

Click Here To Read The Full Story