Subsidiary Company: What You Need to Know

Have you considered expanding your business into new markets or regions but are worried about the risks involved? Or maybe you’re curious about how some large corporations operate multiple brands or businesses under their umbrella. In both cases, a subsidiary company could be the answer. In this article, we’ll explore the concept of a subsidiary company, why businesses choose to create them, and when they are necessary. 

What Is a Subsidiary Company?

A subsidiary company is a separate legal entity that is owned and controlled by a parent or holding company but operates independently in terms of management, operations, finances, and legal structure. Subsidiaries are often created for strategic purposes, such as entering new markets, diversifying the parent company’s product offerings, or limiting its liabilities. Pixar Studios is indeed a well-known example of a subsidiary company, owned by the Walt Disney Company. Other notable examples of subsidiary companies include YouTube (owned by Google/Alphabet Inc.), Instagram (owned by Facebook/Meta), and Chevrolet (owned by General Motors).

What Is the Purpose of a Subsidiary Company?

A subsidiary company serves to oversee the financial and operational risks associated with venturing into new markets while enabling the parent organization to retain oversight of its investments. Subsidiaries not only mitigate risks but also diversify revenue streams, enhance market coverage, and broaden access to resources. Furthermore, they facilitate the development of specialized products or services in distinct regions or countries without necessitating the establishment of a new entity.

Who Owns a Subsidiary Company?

It’s typical for the parent company to possess over 50% of the subsidiary company, which grants the parent organization the dominant ownership stake in the subsidiary. Sometimes, controlling interest can be secured by being the majority shareholder.

Are Subsidiaries Separate Companies?

A subsidiary and parent companies are distinct entities that have separate legal, tax, and debt responsibilities. This not only reduces mutual liabilities but also allows subsidiaries to operate as independent brands with some autonomy from their parent organization. Even so, the parent company has considerable influence over its subsidiary’s operations—as the primary shareholder, the parent company has the power to appoint board members and thereby shape the overall business strategy of a subsidiary. 

Wholly Owned vs Tiered Subsidiary Companies

Having a wholly owned subsidiary means that the parent company has 100% ownership of the subsidiary’s voting stock. This type of relationship allows for complete control and visibility over the subsidiary’s activities. 

A tiered subsidiary is similar in terms of ownership, but instead of the parent company owning all of the voting stock, they would own a controlling stake in multiple subsidiaries who, in turn, each own a portion of the original company’s voting stock.

Holding Company vs Parent Company

The difference between a holding company and a parent company is based on their roles. Holding companies are entities that exist solely to acquire ownership interests in other companies or assets, while parent companies are businesses with operations distinct from those of their subsidiaries. For example, if an automobile manufacturer holds an interest in several different auto parts suppliers throughout its global supply chain, then it would be the parent company while its acquired suppliers would be considered wholly-owned subsidiaries of that parent entity.

How to Form a Subsidiary Company

The process of forming a subsidiary company requires careful planning and execution. It’s not challenging but does require making sure all paperwork is filled out correctly. 

Complete Articles of Organization 

The Articles of Organization is a really important document when you’re starting a business. It’s like the building blocks for everything your business does in the future, like making deals or signing contracts. It also helps the government know that your business exists and gives you a special number for taxes.

This legal form declares your new business as a separate entity from its parent company. You’ll need to include all the necessary details in the Articles of Organization, such as your business name, purpose, structure, management information, registered agent’s name and address, and anything else that might be relevant to your new company. 

Once complete, file the document with the Secretary of State’s office in the state where you plan to operate your business

Think of it like filling out a form to get a driver’s license – you need to provide all the necessary information so that your new business is recognized as a separate entity in the eyes of the law.

Apply for City or County Permits 

Before beginning operations, it’s essential to ensure that not only the business has received all the relevant permits but also that all employees involved have taken the required safety training for their roles and are in compliance with regulations applicable within the local jurisdiction. 

Depending on the industry and location of the business, different permits may be required. For example, businesses in the food production or restaurant industry may need to obtain licenses related to food safety regulations such as sanitation standards and food storage protocols. Similarly, businesses in the construction industry will likely require permits related to zoning approvals as well as building codes regarding fire safety requirements and structural integrity. 

Failing to acquire these necessary permits can result in costly fines or even loss of business. 

Submit Business Application 

After all permits have been approved, business owners must then submit a Business Application with details about their company’s activities and operations. This application should include information such as:

  • Name and address of principal officers in charge of day-to-day operations 
  • Descriptions of products or services being provided by the business
  • Financial statements
  • Legal documents
  • Organizational charts
  • Tax filing forms
  • Insurance policies
  • Trademarks or copyrights held by the company
  • Relevant operating agreements with partners
  • Contact information for customers or vendors 

With all these elements in place, companies are ready to begin conducting business according to legally recognized guidelines.

Advantages of a Subsidiary Company

There are several advantages to creating a subsidiary company:

  • Limited Liability: A subsidiary allows a parent company to limit its liabilities by creating a legally independent business entity that can be held responsible for its debts and obligations. 
  • Diversification: A subsidiary can help a parent company to enter new markets or diversify its product offerings without affecting its core business operations. This can help spread the company’s risk and increase its chances of success. 
  • Access to New Resources: A subsidiary offers access to new talent, technology, and expertise that can be leveraged across the entire organization. 
  • Autonomy for a Parent Company: This allows the subsidiary to maintain control over its investments while giving subsidiary management the flexibility to make business decisions that are in the best interest of the subsidiary.
  • Tax Advantages: Depending on the tax laws of the country in which the subsidiary is incorporated and operates, a subsidiary may be subject to lower tax rates or more favorable tax treatment than the parent company.

Disadvantages of a Subsidiary Company

You’ll need to know about the potential drawbacks as well so you can truly make an informed decision if a subsidiary is right for you.  

  • Increased Administrative Burden: A subsidiary company creates additional administrative tasks, such as maintaining separate financial and legal records, and complying with local regulations and tax laws. This can be time-consuming and expensive, especially for a smaller parent company.
  • Potential for Conflicts of Interest: A subsidiary company may have its own agenda and goals, which may conflict with those of the parent company. This can create tension and strain the relationship between the two entities.
  • Higher Startup and Operational Costs: Setting up a subsidiary company requires significant investment in terms of time, money, and resources. There may be additional costs associated with creating a new brand identity, establishing a new market presence, and building a new team. This can be a significant barrier for smaller parent companies or those operating in highly competitive industries.

Examples of Subsidiary Companies

Some popular examples include: 

1. Apple Inc is a parent company whose subsidiaries include Beats Electronics, LLC, which produces and sells headphones, speakers, and audio software; Braeburn Capital which manages the company’s cash; and Anobit Technologies Ltd., an Israeli-based flash storage solutions provider purchased by Apple in 2011. 

2. Walmart Inc has a variety of subsidiaries such as Seiyu Group, a Japanese supermarket chain that it acquired in 2008;, an e-commerce platform acquired in 2016; and VUDU Inc., an on-demand streaming media service owned by Walmart since 2010. 

3. Johnson & Johnson owns several subsidiaries including Janssen Pharmaceuticals Inc., which develops treatments for mental illness and other conditions; Listerine Oral Care which manufactures oral health products; and McNeil Consumer Healthcare division specializing in over-the-counter medications like Tylenol and Motrin IB.

Maximizing Business Growth with doola

By creating a separate legal entity, companies can limit their liability and take advantage of new growth opportunities. Subsidiaries can also provide valuable tax benefits and help businesses enter new markets.

However, managing multiple subsidiaries is time-consuming and requires careful planning and strategic oversight. doola can provide businesses with the financial expertise and support needed to manage multiple subsidiaries effectively. 


What is the difference between a subsidiary and a corporation?

The main difference between a corporation and a subsidiary is that while corporations have their own legal identity independent from the shareholders or their parent companies, subsidiaries are ultimately responsible to their parent companies.

Does subsidiary mean ownership?

A subsidiary can imply some form of ownership, as the parent company owns or controls the subsidiary. However, it’s important to note that the subsidiary is a separate legal entity from the parent company. 

Is a subsidiary a private company?

A subsidiary can be either a private or public company, depending on whether its shares are publicly traded on a stock exchange or held privately by the parent company.

Is a subsidiary the same as a shareholder?

A subsidiary and a shareholder are not the same things. A subsidiary is a separate legal entity owned or controlled by another company, while a shareholder is an individual or entity that owns shares in a company. Although the parent company of a subsidiary may be a shareholder in the subsidiary, not all shareholders are subsidiaries. 

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