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A concern (German: Konzern) is a type of business group common in Europe, particularly in Germany. It results from the merger of several legally independent companies into a single economic entity under unified management.
A concern consists of a controlling enterprise and one or more controlled enterprises. The relationship between the controlling and controlled enterprises is based on the actual commercial and management relationships, unlike parent and subsidiary companies which are related by share ownership and voting rights.
Outside of professionals, the term Group, also mistakenly within the meaning of large companies – regardless of its corporate structure – is understood.
The Group concept is one of anti-trust relevance: the so-called Group privilege, the privilege of the consolidated Group companies involved, means that in itself, prohibition included practices did not violate German or European Commission (EC) anti-trust law. On the other hand, the Group concept in Banking Act in the formation of borrower unit and particularly of the large credit limits of paramount importance.
Types of Concern
The Stock Corporation Act 1965 (Germany) ("the Act"), defines the Concern as: "one dominant and one or more dependent companies under the unified leadership of the ruling company together".
The Act only applies to German stock corporations (which are analogous to public company in the United States and the Commonwealth) and not to German limited liability corporations (which are analogous to non-publicly traded companies in the United States and the Commonwealth), which are regulated under the Limited Liability Company Act of 1892 (Germany).
The Act defines three different kinds of concern: the contractual concern, the factual concern, and the flat concern.
In this form of concern, the controlling enterprise and controlled enterprise enter into a control agreement - wherein the controlling enterprise can obtain management powers over the controlled enterprise, sometimes amounting to complete control - and/or a profit transfer agreement. These powers may be used in a way that is detrimental to the subsidiary, provided that they are in the interests of the concern and do not damage the legal separateness of the subsidiary.
In return, the controlling enterprise is liable to compensate the controlled enterprise for all deficits of the controlled enterprise during the term of the agreement.
In this form of concern, the controlling enterprise exerts a controlling influence on the controlled enterprise, but there is no formal control or profit transfer agreement. If one company owns a majority in another company, then the first company is deemed to exert a controlling influence. The parent company is then liable for any damage which results from the interference of the parent company in the subsidiary, which is judged on a case-by-case basis. This kind of concern is more difficult to establish and so is more common.
In this version, there is no parent company, instead a number of legally separate companies are subject to common direction.
Other forms of Concern
To apply the law of concern to concerns involving German limited liability companies, the German courts have created the qualified de facto concern, beginning in the 1970s. This form of concern applies only in parent subsidiary relationships. If the parent is shown to have a long-standing and pervasive control over the affairs of the subsidiary, then there is a presumption that the parent was not acting in the best interests of the subsidiary. If the parent is unable to displace this presumption, then the parent is liable for all the obligations of the subsidiary.
This type of concern was limited by the German Federal Supreme Court in 2002 to only apply where the control is such that the subsidiary will inevitably collapse or become insolvent, on the basis that the parent has abused the separate legal personality of the subsidiary.
(inorganic groups) The conglomerate consists of enterprises in different businesses. Unlike the concern, the companies in a conglomerate have limited business relationships with each other.
Criticism of corporations
The result of the merger often emerging political power of (wholesale) companies has been criticised for their formation. The critics can be divided into three groups:
- Politicians: Political criticism about the group size are reflected in the European Union competition law and anti-trust laws.
- The Church: The Church's criticism comes as a rule of the Christian (Catholic, Protestant or Orthodox) social teaching (or corporate ethics).
- Society: Social criticism can be found since the formation of the labour movement, especially in the currents of Social democracy and Marxism.
Since the emergence of New Social Movements, corporations have also become the focus of movements such as the Environmental movement and the Anti-globalization movement (see Black Book brand companies).
- Stock Corporation Act 1965 (Germany), section 17
- Stock Corporation Act 1965 (Germany), section 16
- Stock Corporation Act 1965 (Germany), section 18
- Reich-Graefe, Rene (2005). "Changing Paradigms: The Liability of Corporate Groups in Germany". Connecticut Law Review. 37.
- Stock Corporation Act 1965 (Germany), section 291
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