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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 ?
Gain amount (the sum of all gains recognized on asset dispositions by the subsidiary while it was a consolidated group member);
The M&S case (if successful) may provide access to tax-saving benefits for many non-EU multinationals for whom the effects of ECJ cases are often limited, depending on the jurisdiction of the relevant EU subsidiary and the group structure.
THE PRINCIPAL TAX BENEFIT associated with adopting a subsidiary structure is the ability, on federal income tax returns, to offset profits in one part of the business with losses in another.
A state member bank may control, or hold an interest in, a financial subsidiary only if:
Sheffield Forgemasters Engineering, a subsidiary of Atchison Casting Corp.
A qualified business subsidiary would be permitted to earn income by providing nontenant related services such as third party management services.
If a subsidiary's employees receive only cash compensation for services rendered, and the parent funds such compensation, the subsidiary incurs a deductible compensation expense and its basis must be reduced under Regs.
But since the activities authorized to banks' subsidiaries cannot differ from those available to the bank itself, there is no additional profit to the overall banking organization in shifting bank powers to a subsidiary.
Heretofore, most practitioners believed that a lower-tier subsidiary that sold assets (either directly or by a deemed sale under section 338(h)(10)) could bring the proceeds of that sale to Parent (and eventually out to the Parent shareholders) only through seriatim liquidations of the lower-tier subsidiaries up the chain to the Parent.
For example, if a parent sells products denominated in dollars to its Japanese subsidiary, that subsidiary has an anticipated foreign-currency exposure, which will become an intercompany foreign-exchange payable when the transaction occurs.