subsidiary

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Subsidiary

Auxiliary; aiding or supporting in an inferior capacity or position. In the law of corporations, a corporation or company owned by another corporation that controls at least a majority of the shares.

A subsidiary corporation or company is one in which another, generally larger, corporation, known as the parent corporation, owns all or at least a majority of the shares. As the owner of the subsidiary, the parent corporation may control the activities of the subsidiary. This arrangement differs from a merger, in which a corporation purchases another company and dissolves the purchased company's organizational structure and identity.

Subsidiaries can be formed in different ways and for various reasons. A corporation can form a subsidiary either by purchasing a controlling interest in an existing company or by creating the company itself. When a corporation acquires an existing company, forming a subsidiary can be preferable to a merger because the parent corporation can acquire a controlling interest with a smaller investment than a merger would require. In addition, the approval of the stockholders of the acquired firm is not required as it would be in the case of a merger.

When a company is purchased, the parent corporation may determine that the acquired company's name recognition in the market merits making it a subsidiary rather than merging it with the parent. A subsidiary may also produce goods or services that are completely different from those produced by the parent corporation. In that case it would not make sense to merge the operations.Corporations that operate in more than one country often find it useful or necessary to create subsidiaries. For example, a multinational corporation may create a subsidiary in a country to obtain favorable tax treatment, or a country may require multinational corporations to establish local subsidiaries in order to do business there.

Corporations also create subsidiaries for the specific purpose of limiting their liability in connection with a risky new business. The parent and subsidiary remain separate legal entities, and the obligations of one are separate from those of the other. Nevertheless, if a subsidiary becomes financially insecure, the parent corporation is often sued by creditors. In some instances courts will hold the parent corporation liable, but generally the separation of corporate identities immunizes the parent corporation from financial responsibility for the subsidiary's liabilities.

One disadvantage of the parent-subsidiary relationship is the possibility of multiple taxation. Another is the duty of the parent corporation to promote the subsidiary's corporate interests, to act in its best interest, and to maintain a separate corporate identity. If the parent fails to meet these requirements, the courts will perceive the subsidiary as merely a business conduit for the parent, and the two corporations will be viewed as one entity for liability purposes.

Cross-references

Mergers and Acquisitions; Parent Company.

subsidiary

noun adjuvant, aiding, assistant, cooperating, helping, secondary, subordinate, subsidiarius, supplemental, supplementary
Associated concepts: subsidiary corporation
See also: appurtenance, appurtenant, chapter, circumstantial, contingent, derivative, extraneous, extrinsic, incident, incidental, inferior, minor, organ, pendent, secondary, slight, subaltern, subordinate, subservient, supplementary

subsidiary

a company is a subsidiary of another company if the second company (the parent) owns more than 50 per cent of the ordinary share capital of the first company or otherwise has voting control over it.
References in periodicals archive ?
Kier, which has subsidaries in Birmingham and Cheltenham, posted a pre-tax profit for the six months to December 31 of pounds 7.
John D Hollingsworth jnr, aged 83, who ran a textile company, with subsidaries in Great Harwood, Blackburn, and other parts of Europe and South America, left nearly all his estate to Furman University, the YMCA in his home town of Greenville, South Carolina, in the United States and charities to be determined by the board of his non-profit foundation.
We're responsible for short-term investing, short-term borrowing, cash management, bank risk management, bank relationship management, and accounting for the Delaware subsidaries.
In Citizens and Southern Corporation and Subsidaries v.
At the same time, extensive discussions were begun with senior staff members at the Board, the Federal Reserve Banks of Atlanta, San Francisco, and New York, and the agencies participating in the coordinated examinations of all the banking subsidaries of First American, including the FDIC, the OCC, and the banking departments of Maryland, New York, and Virginia.
Cable and Wireless Worldwide plc, United Kingdom, ICD Research, company overview, key facts, business description, SWOT analysis, strengths, weaknesses, opportunities, threats, key employees, competitive benchmarking, employee biographies & locations and subsidaries.
Tenders are invited for Appointment Of Third Party For Coal Sampling And Analysis By Ntpc-Mouda At Loading End (Mines) And Un-Loading End For The Coal Supplied By Cil Subsidaries.