What is a domination and profit-transfer agreement, and how does it affect the subsidiary's valuation?
A domination and profit-transfer agreement is a group contract between parent and subsidiary that governs:
- Domination: the parent can issue binding instructions.
- Profit transfer: the subsidiary's entire profit is transferred to the parent; conversely the parent absorbs all of the subsidiary's losses.
a 75% majority resolution at the subsidiary's shareholder meeting.
- Guaranteed dividend (a recurring "compensation payment"): typically based on historical net income.
- Buyout offer: the right to sell to the parent at a valuation-fair price.
an expert opinion under the applicable professional statutory standard for both the recurring compensation and the buyout price.
minority shareholders can challenge both amounts.
these agreements are often a precursor to a squeeze-out — a typical sequence is a 90% threshold for the agreement, then a squeeze-out at ≥95%.
Deep diveShow more details
A large automotive group used a domination agreement with a listed truck-maker subsidiary before later squeezing out minorities.
"A domination/profit-transfer agreement is a standard step in majority takeovers of listed large-/mid-cap targets — it simplifies cash-flow consolidation and enables tax grouping (fiscal unity)."
The domination/profit-transfer agreement with statutory guaranteed minority compensation is a jurisdiction-specific corporate-law construct; the universal principle (control agreements with guaranteed minority compensation) is taught, but the founder should decide whether to keep this DACH-specific card.