subsidiary

(redirected from Subsidary)
Also found in: Dictionary, Thesaurus, Financial.
Related to Subsidary: subsidy

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 ?
3) 5423ns-colour light led subsidary signal lighting unit 110 v ac led signal route aspect led retrofittable in existing cls housing and compatible with ac led ecr as per rdso specn.
Middle East/Gulf States area manager Patrick J McKinney told CW the subsidary was up to the challenge.
Founded in 1998, Flavours Direct currently has 38 employees and will continue to trade under its current name as a UK subsidary of Symrise.
Fremont Investment & Loan Freud Development a Troutbrook Subsidary GCP Capital Group, LLC General Plumbing Corp.
America Movil is a subsidary of Telefonos Mexicanos (Telmex).
The processor, a subsidary of the farmer-owned Farmers First company, has unveiled two ranges, Lamb Strips and Chicken Strips, and intends to introduce Beef Strips in the new year.
Ondeo, subsidary of French water works group Suez (energy, water and communications), have signed a 30-year framework contract to manage the supply of drinking water for the Chinese town of Chongqing, said Suez and Ondeo in a joint press release.
The company: Innovative Eooling Dynamics [ICD; Toronto], a subsidary of Tesma International.
FIRST Trust, the Northern Ireland-based subsidary of the AIB bank, is to invest IRpounds 12.
A promising if uneven debut feature for writer-director Esther Bell, the loosely autobiographical "Godass" follows its punky young heroine through some life changes that are less well realized than the film's smart, funny grasp of background milieus and subsidary characters.
Late last year, Harvard Appartus acquired Hugo Sachs Elektronik and the NaviCyte subsidary of Trega Biosciences (see IBO 12/31/00).
Channel 4 and NTL subsidary Premium TV have withdrawn their pounds 250million bid for exclusive rights for the media rights of Britain's leading racecourses.