Document ID: chunk:federal_register_of_legislation:F2025C00172:body:0:p56
Version: federal_register_of_legislation:F2025C00172
Segment Type: other
Provision Reference: 
Character Range: 144095–146969

in which control of one entity (the investee) by the other (the investor) might arise.

Power
IG5 One of the criteria set out in paragraph 7 for control of an investee is that the investor has power over the investee.  Paragraph 10 states that an investor has power over an investee when the investor has existing rights that give it the current ability to direct the relevant activities, that is, the activities that significantly affect the investee's returns.  As an example, a not-for-profit investor would have power over an investee when the investor can require the investee to deploy its assets or incur liabilities in a way that affects the investee's returns (for example, in providing goods or services to the investor or other parties that assist in achieving or furthering the investee's objectives).
IG6 Paragraph 11 states that power arises from rights, and refers to voting rights granted by equity instruments and rights arising from contractual arrangements.  While these rights will often be the source of power for for-profit entities, power will frequently arise through different sources for not-for-profit entities.  For many not-for-profit entities, rights arising from administrative arrangements or statutory provisions will often be the source of power.  Assessing the purpose and design of an investee will assist an investor to identify who has power over the investee, ie the current ability to direct the relevant activities (paragraph B5).
IG7 As an example of contractual or statutory arrangements, a not-for-profit investor often will have power over an investee that it has established when the constituting document or enabling legislation for the investee specifies the investor's rights to direct the operating and financing activities that may be carried out by the investee.  However, the impact of the constituting document or legislation is evaluated in the context of the prevailing circumstances, as all facts and circumstances need to be considered in assessing whether an investor has power over an investee.  For example, the purpose and design of an investee may point to the relevant activities of the investee and how decisions about the relevant activities are made.  To illustrate, a government may not have power over a research and development corporation that operates under a mandate created, and limited, by that government's legislation if that or other legislation means that the power to direct the relevant activities is held by other entities that are not controlled by the government, such as participants in the research and development activities.
IG8 The research and development corporation example in the previous paragraph illustrates that an investor might not have power over an investee due to the rights of other parties in relation to the investee, as indicated in paragraph B10.  As another example,