The situation where control over an entity is established on the basis of influence rather than legal control (de jure control). De facto control is actual control over the management of the entity, whether it is exercised through the holding of an influential number shares or other securities in the entity or having the right to appoint/ dismiss its directors, etc.

De facto control may exist if an individual or group of individuals has the ability to affect the constitution of an entity’s board of directors or their powers (given that the board of director is elected and mandated by the entity’s shareholders). De factor control may also exist on the basis of operational influence, i.e., ability to affect the operations of the entity, based on day-to-day management decisions and/ or economic dependence.

For example, a person may hold less than the legal percentage of the voting power for a proper control (legal control) but he/ she holds other, sufficient means of influence (loan, by agreement between holders of major percentages, etc.) so such a person has the ability to dictate the way an entity would act. Assume that one person holds 40% of the voting rights, while there are other three holders each having 20% holdings, in which case the four holders may enter into an agreement whereby the holder of 40% would be allowed to have control (de facto control) over the entity’s management and operations.

De facto control is also known as control in fact or control in substance.