Control in Competition Law: Key to Merger Analysis in SV
Our lawyers in El Salvador, experts in Competition Law, share this article on the key role that the notion or concept of control plays in determining whether an economic concentration must be notified to the competition authority.
The Competition Law in El Salvador stipulates that authorization must be requested from the Superintendence of Competition to carry out an economic concentration when the following conditions are met: the transaction involves the merger, acquisition, consolidation, integration, or combination, in whole or in part, of businesses previously independent from one another; there is a change of control; there is an appropriate geographic nexus; and certain thresholds of assets and income of the parties involved are exceeded.1
In Competition Law, and particularly within the analytical framework for assessing whether a transaction qualifies as a notifiable economic concentration, the notion of control plays a central analytical role. Understanding this concept requires going beyond formal legal structures to undertake a functional analysis of the relationships between the economic agents involved in a given transaction.
In that regard, to determine whether each of the aforementioned conditions is fulfilled, the concept of control becomes critical, as it allows for the assessment of whether the agents are previously independent, whether a change of control occurs, whether there is a geographic nexus, and which assets and income should be considered in calculating thresholds. Article 32 of the Competition Law defines control as: "the ability of an economic agent to influence another through the exercise of property rights or the right of use over all or part of the assets of the economic agent, or through agreements that confer substantial influence over the composition, voting, or decisions of the governing, administrative, or legal representative bodies of the economic agent.”
While the legal definition provides a general idea of what constitutes control, the Superintendence of Competition has clarified through administrative precedents that control, understood as the capacity of one agent to exert influence over another, must relate specifically to the determination of commercial and strategic business decisions. This understanding reflects the Superintendence’s approach of applying not only a legal but also an economic analysis of markets, in accordance with Article 4 of the Competition Law. Accordingly, its attention is directed toward market interactions and structural changes. Moreover, the legal definition encompasses two principal forms of control: control by ownership and control by administration.
Control by ownership, as defined in law and interpreted in the context of economic concentrations, may manifest in relation to both legal entities and assets associated with an ongoing business. In the case of legal entities, such control is exercised through the ownership of shares or equity interests that confer sufficient voting rights to significantly influence the strategic direction of the entity. This may include the ability to appoint board members, key management personnel, or to influence critical decisions such as approving investments, mergers, or other relevant transactions.
With respect to assets, control by ownership may arise when an economic agent, by virtue of property rights, usage rights, or equivalent legal arrangements, is able to exploit those assets for the purpose of conducting a specific economic activity, thereby constituting a functionally autonomous business unit or "ongoing business” Examples include the acquisition of complete production facilities along with associated trademarks, licenses, or other forms of intellectual property tied to an operating ongoing business, as well as certain contracts that ensure the transfer of operational capacity.
Conversely, control by administration -also referred to as administrative control- occurs when an economic agent, without holding a significant ownership stake or relevant property rights, nonetheless has the ability to substantially influence the strategic or commercial decisions of another agent through contractual, statutory, or corporate governance mechanisms. Although less common than ownership-based control, this form has been recognized by the Superintendence of Competition in administrative precedents, particularly in cases involving distribution agreements with distinctive features or other arrangements that, in practice, shift decision-making authority from one agent to another, even without altering the formal shareholding structure.
Once the scope of control and its typologies are established, pursuant to the criteria developed by the Superintendence and consistent with comparative legal doctrine and international practice, its key role in analyzing the legal requirements of an economic concentration becomes evident. Control is central to verifying prior independence, the existence of a change of control, the presence of a geographic nexus, and whether the thresholds are met or exceeded.
It is also important to note that the Superintendence regards control as a fundamental criterion for identifying the economic groups involved in a concentration. The authority understands economic groups as economic units that, due to control linkages, operate as a single competitive force in the market, irrespective of the sectors in which their members are active.
Accordingly, when assessing whether a transaction must be submitted for authorization, the first step is to evaluate whether there is prior independence between the directly involved parties and the economic groups to which they belong. Prior independence means that, before the execution of the transaction, no control relationship exists between the parties (understood to include both the directly involved agents and their respective economic groups). This analysis must be conducted from a functional perspective, taking into account the economic reality of the relationships between the parties, and not solely based on formal legal criteria. For this reason, when reviewing a notification, the Superintendence frequently requests additional information beyond the transaction itself to verify the absence of preexisting control relationships that could compromise the assessment of the agents as independent.
Once the economic groups involved have been identified through their control relationships, and it has been established that the transaction involves previously independent agents, the analysis must then determine whether the legal instruments governing or accompanying the transaction result in an effective transfer of control from one agent to another or over an ongoing business. This element is critical, as it marks the point at which a transaction may bring about a structural change in the competitive dynamics of the market, an outcome that lies at the core of the authority’s substantive review. In some cases, the change of control is clearly identifiable; in others, it arises from various contractual arrangements. Thus, a thorough examination of all contractual elements related to the transaction—including principal agreements, annexes, ancillary arrangements, and any other relevant instruments—is essential to assess whether a change of control indeed occurs.
Having confirmed that the transaction takes place between previously independent agents and entails a change of control, the next step is to examine whether an appropriate geographic nexus exists. According to the Superintendence, a transaction is deemed to have a geographic nexus with El Salvador if the agents involved maintain a direct or indirect presence in the country, either through assets associated with an ongoing business or through the production of goods or the provision of services within the country’s borders. In this regard, both the assets and revenues linked to the production of goods or services must be attributable to an agent over whom the parties to the transaction -or their respective economic groups- exercise control, in order to satisfy the geographic nexus requirement. Notably, this condition must be met by both parties to the transaction; otherwise, the transaction is not subject to mandatory notification before the Superintendence of Competition.
The final condition to be verified in determining whether a concentration requires prior authorization has met the thresholds established under the Competition Law. In El Salvador, these thresholds are defined in terms of the value of assets (equivalent to fifty thousand times the annual urban industrial minimum wage) or income (equivalent to sixty thousand times the annual urban industrial minimum wage).
For purposes of calculating these thresholds, the Superintendence considers not only the assets and revenues of the directly involved parties but also those of other agents comprising their respective economic groups, that is, agents with whom they maintain control relationships as previously defined. It should be emphasized that only entities within those economic groups that have an economic presence in El Salvador are considered in this analysis. Furthermore, the method for calculating thresholds may vary depending on the nature of the transaction.
Finally, it is important to note that economic concentrations resulting from transactions executed abroad may not produce effects in the domestic market unless the corresponding authorization is obtained from the Superintendence of Competition. With respect to the element of control, this restriction implies that prior authorization must be secured before the exercise of control, whether direct or indirect, over an economic agent with presence or operations in El Salvador is effectuated.
In light of the foregoing, it becomes clear that a precise understanding of the concept of control and its implications is indispensable for companies involved in merger or acquisition processes. A proper grasp of the notion of control facilitates the accurate identification of parties and their respective economic groups, the verification of prior independence, the assessment of a change of control, the determination of a geographic nexus, and the evaluation of applicable thresholds. Accordingly, a rigorous and technically sound assessment within this analytical framework not only strengthens strategic decision-making in mergers and acquisitions but also mitigates regulatory risks and ensures timely compliance with the regime governing economic concentrations in El Salvador.
The information provided by ARIAS® is presented for informational purposes only. This information is not legal advice and is not intended to create, and does not constitute, an attorney-client relationship. Readers should not act upon this information without seeking advice from professional advisers.
The Competition Law in El Salvador stipulates that authorization must be requested from the Superintendence of Competition to carry out an economic concentration when the following conditions are met: the transaction involves the merger, acquisition, consolidation, integration, or combination, in whole or in part, of businesses previously independent from one another; there is a change of control; there is an appropriate geographic nexus; and certain thresholds of assets and income of the parties involved are exceeded.1
In Competition Law, and particularly within the analytical framework for assessing whether a transaction qualifies as a notifiable economic concentration, the notion of control plays a central analytical role. Understanding this concept requires going beyond formal legal structures to undertake a functional analysis of the relationships between the economic agents involved in a given transaction.
In that regard, to determine whether each of the aforementioned conditions is fulfilled, the concept of control becomes critical, as it allows for the assessment of whether the agents are previously independent, whether a change of control occurs, whether there is a geographic nexus, and which assets and income should be considered in calculating thresholds. Article 32 of the Competition Law defines control as: "the ability of an economic agent to influence another through the exercise of property rights or the right of use over all or part of the assets of the economic agent, or through agreements that confer substantial influence over the composition, voting, or decisions of the governing, administrative, or legal representative bodies of the economic agent.”
While the legal definition provides a general idea of what constitutes control, the Superintendence of Competition has clarified through administrative precedents that control, understood as the capacity of one agent to exert influence over another, must relate specifically to the determination of commercial and strategic business decisions. This understanding reflects the Superintendence’s approach of applying not only a legal but also an economic analysis of markets, in accordance with Article 4 of the Competition Law. Accordingly, its attention is directed toward market interactions and structural changes. Moreover, the legal definition encompasses two principal forms of control: control by ownership and control by administration.
Control by ownership, as defined in law and interpreted in the context of economic concentrations, may manifest in relation to both legal entities and assets associated with an ongoing business. In the case of legal entities, such control is exercised through the ownership of shares or equity interests that confer sufficient voting rights to significantly influence the strategic direction of the entity. This may include the ability to appoint board members, key management personnel, or to influence critical decisions such as approving investments, mergers, or other relevant transactions.
With respect to assets, control by ownership may arise when an economic agent, by virtue of property rights, usage rights, or equivalent legal arrangements, is able to exploit those assets for the purpose of conducting a specific economic activity, thereby constituting a functionally autonomous business unit or "ongoing business” Examples include the acquisition of complete production facilities along with associated trademarks, licenses, or other forms of intellectual property tied to an operating ongoing business, as well as certain contracts that ensure the transfer of operational capacity.
Conversely, control by administration -also referred to as administrative control- occurs when an economic agent, without holding a significant ownership stake or relevant property rights, nonetheless has the ability to substantially influence the strategic or commercial decisions of another agent through contractual, statutory, or corporate governance mechanisms. Although less common than ownership-based control, this form has been recognized by the Superintendence of Competition in administrative precedents, particularly in cases involving distribution agreements with distinctive features or other arrangements that, in practice, shift decision-making authority from one agent to another, even without altering the formal shareholding structure.
Once the scope of control and its typologies are established, pursuant to the criteria developed by the Superintendence and consistent with comparative legal doctrine and international practice, its key role in analyzing the legal requirements of an economic concentration becomes evident. Control is central to verifying prior independence, the existence of a change of control, the presence of a geographic nexus, and whether the thresholds are met or exceeded.
It is also important to note that the Superintendence regards control as a fundamental criterion for identifying the economic groups involved in a concentration. The authority understands economic groups as economic units that, due to control linkages, operate as a single competitive force in the market, irrespective of the sectors in which their members are active.
Accordingly, when assessing whether a transaction must be submitted for authorization, the first step is to evaluate whether there is prior independence between the directly involved parties and the economic groups to which they belong. Prior independence means that, before the execution of the transaction, no control relationship exists between the parties (understood to include both the directly involved agents and their respective economic groups). This analysis must be conducted from a functional perspective, taking into account the economic reality of the relationships between the parties, and not solely based on formal legal criteria. For this reason, when reviewing a notification, the Superintendence frequently requests additional information beyond the transaction itself to verify the absence of preexisting control relationships that could compromise the assessment of the agents as independent.
Once the economic groups involved have been identified through their control relationships, and it has been established that the transaction involves previously independent agents, the analysis must then determine whether the legal instruments governing or accompanying the transaction result in an effective transfer of control from one agent to another or over an ongoing business. This element is critical, as it marks the point at which a transaction may bring about a structural change in the competitive dynamics of the market, an outcome that lies at the core of the authority’s substantive review. In some cases, the change of control is clearly identifiable; in others, it arises from various contractual arrangements. Thus, a thorough examination of all contractual elements related to the transaction—including principal agreements, annexes, ancillary arrangements, and any other relevant instruments—is essential to assess whether a change of control indeed occurs.
Having confirmed that the transaction takes place between previously independent agents and entails a change of control, the next step is to examine whether an appropriate geographic nexus exists. According to the Superintendence, a transaction is deemed to have a geographic nexus with El Salvador if the agents involved maintain a direct or indirect presence in the country, either through assets associated with an ongoing business or through the production of goods or the provision of services within the country’s borders. In this regard, both the assets and revenues linked to the production of goods or services must be attributable to an agent over whom the parties to the transaction -or their respective economic groups- exercise control, in order to satisfy the geographic nexus requirement. Notably, this condition must be met by both parties to the transaction; otherwise, the transaction is not subject to mandatory notification before the Superintendence of Competition.
The final condition to be verified in determining whether a concentration requires prior authorization has met the thresholds established under the Competition Law. In El Salvador, these thresholds are defined in terms of the value of assets (equivalent to fifty thousand times the annual urban industrial minimum wage) or income (equivalent to sixty thousand times the annual urban industrial minimum wage).
For purposes of calculating these thresholds, the Superintendence considers not only the assets and revenues of the directly involved parties but also those of other agents comprising their respective economic groups, that is, agents with whom they maintain control relationships as previously defined. It should be emphasized that only entities within those economic groups that have an economic presence in El Salvador are considered in this analysis. Furthermore, the method for calculating thresholds may vary depending on the nature of the transaction.
Finally, it is important to note that economic concentrations resulting from transactions executed abroad may not produce effects in the domestic market unless the corresponding authorization is obtained from the Superintendence of Competition. With respect to the element of control, this restriction implies that prior authorization must be secured before the exercise of control, whether direct or indirect, over an economic agent with presence or operations in El Salvador is effectuated.
In light of the foregoing, it becomes clear that a precise understanding of the concept of control and its implications is indispensable for companies involved in merger or acquisition processes. A proper grasp of the notion of control facilitates the accurate identification of parties and their respective economic groups, the verification of prior independence, the assessment of a change of control, the determination of a geographic nexus, and the evaluation of applicable thresholds. Accordingly, a rigorous and technically sound assessment within this analytical framework not only strengthens strategic decision-making in mergers and acquisitions but also mitigates regulatory risks and ensures timely compliance with the regime governing economic concentrations in El Salvador.
The information provided by ARIAS® is presented for informational purposes only. This information is not legal advice and is not intended to create, and does not constitute, an attorney-client relationship. Readers should not act upon this information without seeking advice from professional advisers.
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1. According to Article 2 of the Competition Law, an economic agent refers to any individual or legal entity -whether public or private- that takes part in economic activities, either directly or indirectly. This applies regardless of whether the activity is carried out for profit.