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

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 ?
More than half (61 percent) of public company and subsidiary defendants cooperated with the SEC during the fiscal year.
354) in which a company is considered a subsidiary of another company where more than half of the joint-stock is owned by another company.
For instance, if the appropriate knowledge for operation in a host country is not sufficient or available for the subsidiary to acquire, then the MNC needs to transfer knowledge in order to facilitate the subsidiary's operations (Bartlett and Ghoshal 1989; Wang and Suh 2009).
Subsidiary as the word is used here means a corporation that holds a certain position and is in a defined relationship with at least one other corporation.
The rig in question was operated by BP Exploration and Production Inc, which was a subsidiary of BP America Production, which in turn was a subsidiary of BP Company North America, which in turn was a subsidiary of BP Corporation North America, which was a subsidiary of BP America Inc, which was a subsidiary of the parent company BP plc.
For purposes of Article 9-A (section 208), capital assets are classified as subsidiary capital, which are "investments in the stock of subsidiaries and any indebtedness from subsidiaries," investment capital, which are "investments in stocks, bonds and other securities, corporate and governmental, not held for sale to customers in the regular course of business, exclusive of subsidiary capital and stock issued by the taxpayer," and business capital, which encompasses "all assets, other than subsidiary capital, investment capital and stock issued by the taxpayer, less liabilities not deducted from subsidiary or investment capital."
The rules apply regardless of whether the parent controlled the subsidiary at the time of the subsidiary's purchase of the parent's stock.
In such subsidiaries--typically the "strategic leaders" and "contributors" rather than the mere "implementers" in Bartlett and Ghoshal's (1989) subsidiary typology--entrepreneurial initiatives are expected to originate in the subsidiary itself, aided by a favorable corporate context (Birkinshaw & Hood, 2001).
MCC established subsidiary Mitsubishi Chemical Hong Kong Limited in 1972, and then its local offices were established in Shanghai and Guangzhou.
* Amount of cash in the subsidiary. Spending significant effort to manage small sums does not make sense.
DOT approves Northwest commuter subsidiary. The Department of Transportation will allow Northwest Airlines' subsidiary Compass Airlines to start flying out of Dulles International Airport next month.
OBH said the first of these tests did not apply as it had borrowed the funds to expand its insurance subsidiary. The government claimed the subsidiary was adequately capitalized and, therefore, that OBH had borrowed the money to buy stock.