Zen Inc. owns 35% of Sun Inc.'s voting shares. Zen is by far the largest single shareholder of Sun Inc.'s shares, with the rest of Sun's shares being very widely held by individual investors. There was a very poor turnout at Sun Inc.'s recent annual meeting, enabling Zen Inc. to elect the majority of Sun's Board of Directors. Does Zen control Sun under IFRS?

A) No, Zen does not control Sun because it cannot exercise control over Sun without the cooperation of Sun's other shareholders.
B) Yes, Zen controls Sun because it is Sun's single largest shareholder group.
C) Yes, Zen is deemed to control Sun because it has elected a majority of Sun's Board members and the other shareholders are not organized in such a way to actively cooperate when they vote.
D) Zen could only control Sun if it owned 50% of Sun's voting shares.

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Cynthia Ramos · Accepted Answer

Final Answer : C, Explanation :  According to IFRS, control can be achieved either through ownership of a majority of the voting rights, or through the ability to influence the direction and management of an entity. Zen Inc. has achieved control of Sun Inc. by electing a majority of the board members, even though it only owns 35% of the voting shares. The low turnout at the annual meeting also indicates that the other shareholders are not organized in a way to actively cooperate when they vote, further strengthening Zen's influence over Sun. Therefore, under IFRS, Zen is deemed to control Sun.

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