Subsidiaries

A subsidiary is a company that is controlled by another company, the parent or holding company. The subsidiary has its own legal existence and may operate under its own management and governance, but the parent typically exercises control through ownership of a majority of voting shares or through other arrangements that give effective decision-making authority.

Control and ownership are central to the subsidiary relationship. In most jurisdictions, control is presumed when a parent owns more than half of the subsidiary’s voting shares, but control can also arise with less than a majority through contractual rights, board representation, or other agreements. A subsidiary may be wholly owned (the parent owns 100%), majority-owned (the parent owns more than 50%), or minority-owned (the parent owns a significant but non-controlling stake).

From an accounting perspective, parent companies consolidate the financial statements of their subsidiaries, presenting the combined results as a single economic entity. Non-controlling interests reflect the portion of subsidiaries not owned by the parent. Intercompany transactions and balances are typically eliminated in consolidation.

Legal and regulatory considerations include the separate liability of the subsidiary, compliance with local corporate, tax, and securities laws, and the potential for liability to transfer in certain circumstances. Transfer pricing and antitrust rules may apply to cross-border operations and intercompany dealings.

Reasons for creating subsidiaries include risk isolation, regulatory or tax considerations, local market access, brand management, and organizational governance. Subsidiaries can be restructured, merged, or dissolved as strategic needs change.