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Encyclopedia > Subsidiary

A subsidiary, in business, is an entity that is controlled by another entity. The controlled entity is called a company, corporation, or limited liability company, and the controlling entity is called its parent (or the parent company). The reason for this distinction is that an individual cannot be a subsidiary of any organization; only an entity representing a legal fiction as a separate entity can be a subsidiary. While individuals have the capacity to act on their own initiative, a business entity can only act through its directors, officers and employees. In economics, a business is a legally-recognized organizational entity existing within an economically free country designed to sell goods and/or services to consumers, usually in an effort to generate profit. ... The term company may refer to a separate legal entity, as in English law, or may simply refer to a business, as is the common use in the United States. ... For other uses, see Corporation (disambiguation). ... This article is about a U.S.-specific corporate form; for limited liability companies in general, see corporation. ... A holding company is a company that owns enough voting stock in another firm to control management and operations by influencing or electing its board of directors. ...


The most common way that control of a subsidiary is achieved is through the ownership of shares in the subsidiary by the parent. These shares give the parent the necessary votes to determine the composition of the board of the subsidiary and so exercise control. This gives rise to the common presumption that 50% plus one share is enough to create a subsidiary. There are, however, other ways that control can come about and the exact rules both as to what control is needed and how it is achieved can be complex (see below). A subsidiary may itself have subsidiaries, and these, in turn, may have subsidiaries of their own. A parent and all its subsidiaries together are called a group, although this term can also apply to cooperating companies and their subsidiaries with varying degrees of shared ownership. When ownership is not shared, so that a subsidiary is wholly owned, it is called a branch. A subsidiary is different from a branch in that the former is jointly owned by the parent company and others while the latter is completely owned by the parent company.[citation needed] This article or section does not adequately cite its references or sources. ...


Subsidiaries are separate, distinct legal entities for the purposes of taxation and regulation. For this reason, they differ from divisions, which are businesses fully integrated within the main company, and not legally or otherwise distinct from it. Commercial law or business law is the body of law which governs business and commerce and is often considered to be a branch of civil law and deals both with issues of private law and public law. ... Division may mean: Division (mathematics), the opposite operation to multiplication. ...


Subsidiaries are a common feature of business life and few if any major businesses do not organise their operations in this way. Examples include holding companies such as Berkshire Hathaway[1], Time Warner, or Citigroup as well as more focused companies such as IBM, or Xerox Corporation. These, and others, organize their businesses into national or functional subsidiaries, sometimes with multiple levels of subsidiaries. A holding company is a company that owns part, all, or a majority of other companies outstanding stock. ... Berkshire Hathaway (NYSE: BRKA, NYSE: BRKB) is a holding company headquartered in Omaha, Nebraska, U.S., that oversees and manages a number of subsidiary companies. ... Time Warner Inc. ... Citigroup Inc. ... IBM redirects here. ... Xerox Corporation (NYSE: XRX) is the worlds largest supplier of toner-based (dry ink) photocopier machines and associated supplies. ...


An operating subsidiary is a business term frequently used within the United States railroad industry. In the case of a railroad, it refers to a company that is a subsidiary but operates with its own identity, locomotives and rolling stock. This is the top-level page of WikiProject trains Rail tracks Rail transport refers to the land transport of passengers and goods along railways or railroads. ... Rolling Stock banner Rolling Stock was a newspaper of ideas and a chronicle of the 1980s published in Boulder, Colorado by Ed Dorn and Jennifer Dunbar Dorn. ...


In contrast, a non-operating subsidiary would exist on paper only (i.e. stocks, bonds, articles of incorporation) and would use the identity and rolling stock of the parent company. A holding company is a company that owns enough voting stock in another firm to control management and operations by influencing or electing its board of directors. ...


Reasons why a company may have subsidiaries

The following are common reasons why companies have subsidiaries, but no list can ever be exhaustive.

  • Risk: Many businesses use subsidiaries to manage risk. This is achieved usually by setting up a subsidiary corporation to undertake the higher risk venture. If that venture subsequently become subject to litigation or liability, legally the subsidiary corporation would be liable and not the parent (unless the parent made guarantees, in which case the parent is liable for the guarantees it made).
  • Acquisition: When one company acquires another, the one acquired becomes a subsidiary of the acquiring company.
  • Regulation: Law may require a company to conduct certain activities through a distinct entity. Examples include banking or the operation of utilities such as electricity or telecommunications. As subsidiaries are distinct legal entities, this ensures full disclosure of the financial results of these businesses and insulates them from the other activities of their group.
  • Territoriality: A group, particularly a multinational one, may create subsidiaries in many jurisdictions simply to prevent someone else doing so to the confusion of their customers.
  • Taxation: Taxation is still largely conducted on national lines. Multinational businesses may therefore establish subsidiaries in each jurisdiction to bring together all their activities in that jurisdiction.

Lets talk about risk control strategies, anyone with more information and willing to share, please do so. ... The phrase mergers and acquisitions (abbreviated M&A) refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling and combining of different companies that can aid, finance, or help a growing company in a given industry grow rapidly without having to create another business...

Control

The word "control" used in the definition of "subsidiary" is generally taken to include both practical and theoretical control. Thus, reference to a body which "controls the composition" of another body's board is a reference to control in principle, while reference to being are able to cast more than half of the votes at a general meeting, whether legally enforceable or not, refers to theoretical power. The fact that a company has a holding of less than 51% which, because the holdings of others are widely dispersed, gives effective control is not enough to give that company 'control' for the purpose of determining whether it is a subsidiary.


In Australia, for instance, the accounting standards defined the circumstances in which one entity controls another. In doing so, they largely abandoned the legal control concepts in favour of a definition that provides that 'control' is "the capacity of an entity to dominate decision-making, directly or indirectly, in relation to the financial and operating policies of another entity so as to enable that other entity to operate with it in pursuing the objectives of the controlling entity." This definition was adapted in the Australian Corporations Act 2001: s 50AA.[1][not in citation given] It has been suggested that Accounting scholarship be merged into this article or section. ... The Corporations Act 2001 (Cth), sometimes referred to just as the Corporations Act (or informally as the Corps Act), is an act of the Commonwealth of Australia that sets out the laws dealing with business entities in Australia at federal and interstate level. ...


The subsidiary can also be made with the intent to defraud the investor, and therefore a court should keep in mind as to for what reasons the subsidary has been made.


See also

The phrase mergers and acquisitions (abbreviated M&A) refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling and combining of different companies that can aid, finance, or help a growing company in a given industry grow rapidly without having to create another business...

Business models which feature elements similar to subsidiaries

Conglomerate is the term used to describe a large company which consists of divisions of often seemingly unrelated businesses. ... Zaibatsu , lit. ... A keiretsu lit. ... Chaebol is a South Korean form of business conglomerates. ...

Footnotes

  1. ^ Corporations Act 2001 - Sect 50AA from Australasian Legal Information Institute. Retrieved 9 September 2006.

  Results from FactBites:
 
Subsidiary - Wikipedia, the free encyclopedia (137 words)
In business, a subsidiary is a company controlled by another company or corporation.
Multinational holding companies such as Berkshire Hathaway[1], Time Warner, or Citigroup usually organize all holdings into subsidiaries, sometimes with multiple levels of containment.
Subsidiaries are separate, distinct legal entities for the purposes of taxation and regulation.
Encyclopedia: Subsidiary (528 words)
Subsidiary motions, except to lay on the table, the previous question, and postpone indefinitely, may be amended.
The motion to amend anything that has already been adopted, as by-laws or minutes, is not a subsidiary motion but is a main motion and can be laid on the table or have applied to it any other subsidiary motion without affecting the by-laws or minutes, because the latter are not pending.
The subsidiary bodies are open to participation by all Parties to the Convention, and governments often send representatives who are experts in the fields of the respective bodies.
  More results at FactBites »

 
 

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