Document ID: chunk:federal_register_of_legislation:F2025C00172:body:0:p66
Version: federal_register_of_legislation:F2025C00172
Segment Type: other
Provision Reference: 
Character Range: 170959–173650

to direct the relevant activities of the company.  The charity is exposed to variable returns from its involvement with TUV, both financial returns (the right to receive distributions of profits from TUV) and non-financial returns (the furtherance of its objective of improving community first aid skills).  Finally, the charity can use its power over TUV (via the board) to affect the nature and amount of returns it obtains through TUV.

Example IG2B

In this example, the facts of Example IG2A apply, except that:

    * the charity does not have the right to receive distributions of profits from TUV since the constitution of the company prohibits distributions to its members; and

    * all profits of TUV are to be reinvested into first aid training programs.

Based on the revised facts and circumstances, the charity controls TUV.  The charity has power over TUV because it appoints the board of the company.  Although it does not receive any financial returns, the charity obtains non-financial returns because TUV is fulfilling one of its objectives by increasing the first aid skills of the community.  The charity is able to use its power over TUV to affect the nature and amount of its returns.  Therefore, the three control criteria are satisfied.

Example IG2C

This example has the same facts as Example IG2B, except that:

    * the charity cannot appoint the board members of TUV, except for the Chair, who must be a board member of the charity; and

    * the charity has the right to veto appointments to the board of TUV, but only in exceptional circumstances – that is, when a potential board member is deemed unsuitable.  This right has only been enforced once, when a proposed board member was found to have a history of fraudulent activities.

Based on these facts and circumstances, the charity does not control TUV.  This is because the charity does not have the requisite power to direct the relevant activities of TUV – it appoints only one of the eight members of the board of TUV.  Even though the charity has the right of veto over TUV board appointments, this is only a protective right because it is a safeguard against having board members who could potentially interfere with the operations of the company and adversely affect its outcomes.

The charity had the opportunity and incentive when establishing TUV to obtain rights that would give it the ability to direct the relevant activities of TUV, but it did not do so.  Being involved in the design of an investee is not sufficient to give an investor control (see paragraph B51 of the Standard).

Example IG2D

In this example, the facts of Example IG2C apply, except that:

    * TUV's constitution