Understanding the Easy Basics of a Subsidiary

What is a subsidiary?

A subsidiary is a company that is owned or controlled by another company, which is usually referred to as the parent company. The parent company typically holds a majority stake in the subsidiary, giving it the power to make decisions and manage its operations.

Subsidiaries can exist in many diverse ways; they can be in the same or different sector to the patent company, and they do not even have to be in the same country. There are many reasons that a company may wish to create a subsidiary. For example, they might be created to diversify the parent company’s operations, to expand into new markets, or to take advantage of tax incentives or favourable regulatory environments.

They are also considered separate legal entities from their parent companies, which means that they have their own balance sheets, income statements, and legal obligations. They operate independently, but the parent company may provide guidance and support in various ways, such as strategic direction, financial support, or shared resources.

What are some examples of subsidiary companies?

There are many different subsidiaries that you may be familiar with, but we have listed just a few below!

  1. Nestlé Purina PetCare Company is a subsidiary of Nestlé S.A., which produces pet food and pet care products.
  2. Instagram, is a subsidiary of Meta, which provides a photo and video-sharing social networking service.
  3. Whole Foods Market, is a subsidiary of Amazon.com, Inc., which operates a chain of natural and organic grocery stores.
  4. Pixar Animation Studios, is a subsidiary of The Walt Disney Company, which produces animated films.
  5. Lexus, is a subsidiary of Toyota Motor Corporation, which produces luxury cars.
  6. Marvel Studios, is a subsidiary of The Walt Disney Company, which produces superhero films.
  7. YouTube, is a subsidiary of Google LLC, which provides a video-sharing platform.
  8. Mojang Studios, is a subsidiary of Microsoft Corporation, which developed the popular video game Minecraft.
  9. HBO, is a subsidiary of WarnerMedia, which produces and distributes television programming.

What is ‘wholly-owned’ subsidiary?

A wholly-owned subsidiary is a type of subsidiary company that is completely owned by its parent company. This means that the parent company owns 100% of the subsidiary’s shares and has complete control over its operations. The subsidiary operates as a separate legal entity, but it is considered a fully integrated part of the parent company’s operations.

The benefits of a wholly-owned subsidiary includes greater control and flexibility for the parent company, as well as the ability to share resources and expertise between the parent company and the subsidiary. They can also provide a way for the parent company to enter new markets or to acquire new technologies or intellectual property.

Buildings to represent subsidiary

Foreign subsidiary

A foreign subsidiary is a subsidiary that is established in a foreign country by the parent company. The parent company usually holds a majority stake, giving it control over the subsidiary’s operations and management.

They can offer several benefits for the parent company, such as increased access to new markets, resources, and customers. They can also help to reduce the parent company’s exposure to risks in its home country, such as economic instability or regulatory changes.

However, establishing one can also pose several challenges, such as cultural and language barriers, regulatory compliance, and geopolitical risks. It is important for the parent company to carefully assess the risks and benefits of establishing one before making any decisions.

Legal Advice

If you have any questions about subsidiaries, please do not hesitate to contact our sister company, Legal Kitz to assist you. To arrange a FREE 30 minute consultation with one of their highly experienced solicitors, click here today. Additionally, you can also check out our Business Kitz Subscription to access our full range of legal, commercial and employment document templates to begin your business with a solid foundation that ensures compliance.  

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