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Revision as of 19:57, 10 February 2025
Subsidiary is a term used in corporate law and business to describe a company that is controlled by another company, known as the parent company or holding company. The control is usually achieved by the parent company owning more than 50% of the subsidiary's stock.
Definition
A subsidiary is defined as a company whose voting stock—more than 50% of its stock or other equity interest—is owned by another company, known as the parent company or holding company. The parent company can control the subsidiary's policies and day-to-day operations, and can make decisions regarding the subsidiary's management and operations.
Types of Subsidiaries
There are two main types of subsidiaries: wholly owned and partially owned. A wholly owned subsidiary is a company that is completely owned by another company. The parent company owns all the shares of the subsidiary. A partially owned subsidiary, on the other hand, is a company in which the parent company owns a majority stake, but not all the shares.
Legal Status
In legal terms, a subsidiary is a separate and distinct legal entity from its parent company. This means that the subsidiary can enter into contracts, sue and be sued, own property, and conduct business in its own name. However, because the parent company has control over the subsidiary, it can also be held liable for the subsidiary's actions.
Advantages and Disadvantages
There are several advantages to establishing a subsidiary. For example, a subsidiary can operate in a different geographic area or market sector than its parent company, allowing the parent company to expand its operations. Additionally, the parent company can protect itself from the subsidiary's liabilities.
However, there are also disadvantages to having a subsidiary. For example, the parent company may have to invest a significant amount of money to establish and maintain the subsidiary. Additionally, the parent company may be held liable for the subsidiary's actions.
