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Under Ind AS 110, an asset manager has wide decision-making authority, market-based 1% AUM + 20% above-hurdle remuneration, holds 20% pro-rata equity, AND an independent board (appointed by other investors) can remove the manager annually without cause. The manager is:
AA principal — 20% equity dominates the analysis
BJoint controller — the board has shared decision-making authority
CAn AGENT — the substantive removal-without-cause right held by the independent board outweighs the 20% equity and remuneration combined
DA principal — annual review is too short a horizon for the rights to be substantive
Answer & Solution
Correct answer: C. An AGENT — the substantive removal-without-cause right held by the independent board outweighs the 20% equity and remuneration combined
Illustration 17(C) — when there is a substantive removal-without-cause right held by an INDEPENDENT board acting on behalf of OTHER investors, the manager's 20% economic interest is overshadowed. Even with 20% equity and performance fees, the substantive removal mechanism converts the manager into an AGENT. The shift between principal and agent is driven by the balance of removal rights vs economic exposure — both factors must be weighed.
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