What percentage of shareholding indicates an associate?

An associate is defined in accounting standards, such as IAS 28, as an entity over which the investor has significant influence, which is typically evidenced by a shareholding of between 20% and 50%. This range indicates that the investor can participate in the financial and operational policy decisions of the investee, without having control over it.

When an entity holds between 20% and 50% of the voting power, it is considered to have the ability to influence decisions and contribute to the overall direction of the associate's operations, making this shareholding percentage the threshold for classifying an investment as an associate. This is crucial for financial reporting, as the methods of accounting for associates differ from those for subsidiaries or joint ventures, impacting how the investor reflects its share of profits, losses, and net assets in its financial statements.

In contrast, a shareholding of less than 20% typically reflects a lack of significant influence, while a holding of more than 50% would indicate control over the entity, leading to consolidation in financial statements instead of treating the investment as an associate.