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Related to subsidiary: subsidiary ledger, Wholly owned subsidiary, Subsidiary legislation


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.


Mergers and Acquisitions; Parent Company.


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


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 ?
One of the purposes of the system of prompt corrective action adopted in 1992 is to ensure that a bank holding company maintains the capital of its subsidiary banks.
Under the facts, corporation X, the foreign subsidiary of a U.
Identifiable assets - if a subsidiary is less than wholly owned, should 100 percent of the fair values of its identifiable net assets at the acquisition date be recognized in consolidation, or only the parent's proportionate share of fair values?
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The court analogized the relationship between the parent and each subsidiary as constituting individual unitary spokes in a wheel, with the parent at the wheel's center.
It has been suggested that the structure of the bank holding company imposes inefficiencies on banking organizations and that these organizations should thus be given the option of conducting expanded financial activities in a direct subsidiary of the bank.
The Preamble states that the new modified taxable income method for calculating subsidiary basis adjustments prescribed by Prop.
Such a non-REIT subsidiary is a fully taxable subsidiary that assumes the ownership and operation of nonqualifying businesses.
A group absorbs an inside loss of a subsidiary member; then, a group member recognizes a loss on a disposition of the subsidiary's stock that is duplicative of the inside loss.
Even though the parent owned all or a majority of the stock in each subsidiary and the subsidiaries were engaged in the same line of business as the parent, the Court held that the potential to operate these subsidiaries did not establish a unitary business because the subsidiaries operated discrete business enterprises.
Revenue ruling 84-152 had involved loans through the intermediary finance subsidiary located in a treaty country.