subsidiary

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Related to subsidiaries: Wholly owned subsidiaries

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 ?
2) The aggregate consolidated total assets of all financial subsidiaries of the state member bank do not exceed the lesser of:
Colorno, Italy, and its subsidiaries, Caggiati Espana, S.
Under the proposals, all taxable subsidiaries owned by a REIT could not exceed 15 percent of the REIT's total assets, and of that total, no more than 5 percent could represent the value of qualified independent contractor subsidiaries.
Based on the information provided in Mellon's notice to the OCC, accompanying legal memorandum, other written materials, information provided by commenters, and the OCC's analysis, we conclude that the proposed activities are permissible for national banks and their operating subsidiaries and are consistent with prior OCC opinions, the OCC said in a letter notifying Mellon of the OCC's approval.
2004-83, a parent (P) and its two wholly owned subsidiaries (S and T) were members of a consolidated group.
May says that a system that funnels "loans" from headquarters to a subsidiary allows subsidiaries to have their own profit centers and to be incented on performance.
The Board believes that any version of financial modernization legislation that authorizes banks to conduct in their subsidiaries any activity as principal that is prohibited to the bank itself is potentially a step backward to greater federal subsidization and eventually to more regulation to contain the subsidies.
Between September and December of that year, BNEC transferred to its subsidiaries $183 million, which had been raised by the debt offering.
By publicly listing emerging technology subsidiaries and regional operating service companies, NewMarket enables a next stage of rapid growth.
The taxpayer attempted to offset the steel subsidiary's loss against the profits of the food-packaging subsidiaries by filing a combined Illinois corporate return.
24) to acquire the nonbanking subsidiaries of Crestar and thereby engage in the nonbanking activities listed in the Appendix.