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 ?
Once the new subsidiary company is established, Red Sea will go on to construct a new manufacturing facility in Libya, which will add some 300,000 square meters of capacity to the existing three facilities which currently are located in Saudi Arabia, United Arab Emirates and Ghana, and will increase total production capacity by 37.
Vice President - Finance and Administration, and Paul Fox, President, Yellow Logistics Services, another subsidiary company.
dollar revenue potential in Mexico, serving the crushing and immediate need for environmental infrastructure services such as Emergency Response Centers, day after event plus historic release site assessment and remediation services and fixed facilities such as sanitary landfills for major population centers such as Mexico City on a 'sole source' and 'direct assignment' basis through the unique teaming agreement Ricardo arranged for our Mexico subsidiary company with the National Autonomous University of Mexico (UNAM) an entity of the Federal Government.
Shanghai Simcom, a subsidiary company of SIM technology Group leading in mobile handset solution design and wireless communications module development in China.
The purpose of setting up a subsidiary company in Hungary is to acquire local talent, participate in tenders, and simplify any purchases or partnerships we may enter into in the future" added Mr.
and its wholly owned subsidiary Company, Western Gold Limited will now be in a position to develop and progress its Gold Mining Exploration activities on its various claims.
as the parent, company, has finalized the strategic plans and has set clear goals for strong future growth for each subsidiary company.
ETI), has established a second subsidiary company called Environmental Tec Constructores, S.