This condition focuses on the voting rights and other powers granted to holders of equity investment at risk as a group. If those rights are nonexistent, are not substantive, or are not centered around the decisions that most significantly affect the legal entity’s economic performance, then the equity investors at risk as a group do not have decision making rights. If this is the case, then decision making rights rest outside this equity group. Therefore, review of the the decision-making authority granted to other interest holders through the entity’s governing documents and/or contracts is necessary. Even if the entity’s governing documents provide broad, strong powers to equity investors, those powers can be transferred by contract or agreement to other parties.
Ultimately, the equity investors at risk do not control the entity’s key decisions, then this condition is failed.
Governing documents and contracts will sometimes provide for kick-out rights and participation rights to equity investors and other parties. The ASC 810 guidance clearly states that these rights have no bearing on the analysis unless they can be exercised by a single party (including its de facto agents and related parties).
Limited partnerships present a special challenge when evaluating decision making rights. As a general rule, the general partner controls a limited partnership. This general rule, however, does not always hold up. See _______ for an in-depth discussion of limited partnerships and multi-tiered ownership structures.