Madrid Ltd. has a 49% holding in King Holding Company (KHC), which is located in a foreign country. KHC’s business is to import goods from Madrid Ltd. and sell them locally. Local laws do not permit foreign investors to hold a majority stake or to have a majority of board members on companies in that country. Thirty percent is held by a local investor, and the investment is funded by Madrid. A local entrepreneur, who is also the CEO, holds the remaining 21%. Madrid has a casting vote on decisions about the relevant activities. How should this investment be classified?
A. A subsidiary
B. A joint venture
C. An associate
D. An investment
C. An associate
Based on the information provided, Madrid Ltd. holds a 49% stake in KHC, which is not a majority ownership but they have a casting vote on decisions about the relevant activities. Since Madrid doesn't have a majority of the voting rights, it does not control KHC, but due to its significant influence through the casting vote, the investment should be classified as an associate rather than a subsidiary. Therefore, the correct classification for this type of investment is C. An associate.
