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 ?
For example, the Panel in the case TAS 2004/A/587 ruled that since the FIFA has its seat in Zurich, Swiss law is applicable subsidiarily to the merits of the case (TAS 2004/A/587, para.
As we subsidiarily indwell the particulars of a person's face in order to form a focal image of it, we are projecting from and through that multitude of particulars to the focal image we are explicitly recognizing as that person's face.
argues not only for respect for civil liberties ("negative rights") but also for the proactive responsibility of the state to assist persons to develop their abilities of productive agency (he employs something like the principle of subsidiarily in this regard).
Subsidiarily, these internal processes warrant survival of the fittest against natural selection more rapidly and more efficiently than the random mutations invoked by Darwinist theories.
There can be great dispute over the application of subsidiarily in any particular circumstance, and it should not be equated simplistically with a Reaganesque demonization of national government, but this distinctively Catholic principle does offer an instrument of evaluation of both individual government programs and general constitutional arrangements.
While the background is perceived subsidiarily, we are focally aware of the object of perception.
The Colombian Constitutional Court established that, in case victims do not know the identity of their direct perpetrators, the latter are not part of the processes, or they do not have enough assets to cover the judicially ordered reparations, these are to be covered by the members of the group to which the perpetrator belonged and, if that is still not enough, subsidiarily by the State.
In an award rendered on 11 September 2008 with regard to a Brazilian football player (7), the panel held that the FIFA rules, in particular the FDC, were primarily applicable, the rules of the Confederacao Brasileira de Futebol (CBF) being applicable subsidiarily.
The papacy, nevertheless, remains a serious obstacle, one that can be overcome only by a new praxis that observes the principle of subsidiarily.
Pope Pius XI described subsidiarily this way: "Just as it is gravely wrong to take from individuals what they can accomplish by their own initiative and industry and give it to the community, so also it is an injustice and at the same time a grave evil and disturbance of right order to assign to a greater and higher association what a lesser and subordinate association can do" (p.