A subsidiary company is a company controlled or owned by another company, called the parent company. This relationship differs from a merger, as a subsidiary can be created rather than purchased. Forming a subsidiary can be beneficial for multinational corporations wanting to work within specific legal parameters.
In legal terms, a company is a group of individuals who have formed an association to carry out, monitor or engage in an industrial or commercial enterprise. There are different types of companies, and some include a holding company, a corporation, a limited liability company, a trust company, a parent company, and a subsidiary company. A subsidiary company – the generic meaning of subsidiary should be subordinate – is a company that is controlled or owned by another company. The company that owns or controls the subsidiary is called the parent company.
There are several different types of relationships that a subsidiary company can have with a parent company. In one type of relationship, the parent company is a holding company, which means that its main function is to control other companies rather than being involved in its own business. The holding company owns the majority of shares in the subsidiary. If the parent owns all shares, the subsidiary is a wholly owned subsidiary.
A parent company and subsidiary arrangement differs from a merger, in which the parent company is submerged in the identity and corporate structure of the acquiring company. Comparing a subsidiary and an incorporated company brings up another fact about these types of companies that distinguishes this relationship from a merger: a subsidiary company can be created, rather than purchased. Another important distinction is in the role of the acquired company’s shareholders. While shareholder approval is required for a merger, it is not required when the company becomes a subsidiary through the purchase of a controlling interest in the company.
Forming a subsidiary company can be beneficial for a multinational corporation that wants to adapt its business to work within the legal parameters of a specific country. Forming a subsidiary is often cheaper than merging. Furthermore, a subsidiary retains its brand, which can have irreplaceable market value, and maintaining a subsidiary rather than merging may limit liability for a risky venture due to the separation of corporate identities.
Asset Smart.
Protect your devices with Threat Protection by NordVPN
