Whether the parent company is the sole or majority shareholder of the subsidiary, it will have virtually total control over the business activities of the subsidiary. As the majority shareholder, the parent company has the possibility to recall or appoint members of the board of directors of the subsidiary and may also decide on the operation of the subsidiary. Apart from that, the subsidiaries retain certain rights. However, many listed companies file consolidated financial statements, including the balance sheet and income statement, which identify the parent company and all subsidiaries together. And if a parent company holds 80% or more of the shares and voting rights of its subsidiaries, it can file a consolidated tax return that can benefit from offsetting the profits of one subsidiary against the losses of another. Each subsidiary must agree to be included in this consolidated income tax return by completing IRS Form 1122. A parent company purchases or establishes a subsidiary to provide the parent company with specific synergies. B for example increased tax benefits, diversified risks or assets in the form of income, equipment or real estate. Nevertheless, subsidiaries are separate and distinct legal entities from their parent companies, which translates into the independence of their commitments, taxation and corporate governance. If a parent company has a subsidiary in a foreign country, the subsidiary must comply with the laws of the country in which it was established and operates. Suppose Company A wants to create a subsidiary to manage its properties. The subsidiary, B LLC, registers with the State and declares that it is wholly owned by Company A.
In this context, economic groups composed of one or more controlling companies and subsidiaries have been set up, which have adopted different rules to define the transparency of the information provided to the market in relation to the company, parent companies and subsidiaries, in order to determine the effects arising from control situations. A subsidiary can be structured as one of the different types of companies and is registered with the State in which it is established as a subsidiary of the company that controls it. The SEC notes that this is only in rare cases, for example. B as when a subsidiary goes bankrupt, a majority-owned subsidiary should not be consolidated. An unconsolidated subsidiary is a subsidiary whose finances are not included in the financial statements of its parent company. Ownership of these companies is generally treated as an equity interest and reported as an asset on the parent company`s balance sheet. For regulatory reasons, unconsolidated subsidiaries are generally those in which the parent companies do not hold a significant stake. A subsidiary is created by registration with the State in which the company operates. The ownership of the subsidiary and the type of legal entity – e.B. a limited liability company (LLC) – are specified in the registration. The word “control” and its derivatives (subsidiary and parent) may have different meanings in different contexts. These terms may have different meanings in different areas of law (e.g.
B company law, competition law, capital markets law) or accounting. For example, if Company A acquires shares of Company B, the transaction may not be subject to merger control (because Company A was already considered a controlling company B under competition law prior to the purchase of shares), but at the same time, Company A may be required to begin consolidating Company B in its financial statements in accordance with the rules. relevant accountants (because it was previously considered a joint venture). has been processed). purchase for accounting purposes). A subsidiary is a company that is controlled by another company and is at least majority-owned by another company. The company that controls the subsidiary is called the parent company or sometimes the holding company. A parent company has its own business activities as well as subsidiaries that operate their own operations. An example is Facebook Inc.: Instagram LLC, Oculus VR LLC and WhatsApp Inc. all became subsidiaries of Facebook Inc.
after Facebook acquired them. An example of a very successful vertically integrated company is Apple. From the birth of Apple to the present day, they have controlled their manufacture and the distribution of their products. He designs the software that fits perfectly into the iPad, iPhone, and computers. Subsidiaries are common in some industries, especially in the real estate sector. A company that owns real estate and owns multiple properties with apartments for rent can form a total holding company, with each property being a subsidiary. The reason for this is to protect assets from the different properties of the liabilities of others. For example, if Company A owns Companies B, C and D (each owned) and Company D is sued, the other companies cannot be held liable for the shares of Company D. According to Article 1159 of the Act, a company is a “subsidiary” of another company, its “holding company”, if that other company: The parent company is usually a larger company, which often has control of more than one subsidiary. Parent companies may be more or less active in relation to their subsidiaries, but they still hold a majority stake to some extent.
The level of control exercised by the parent company generally depends on the level of control that the parent company grants to the directors of the subsidiary. In descriptions of large corporate structures, the terms “first-level subsidiary”, “second-level subsidiary”, “third-level subsidiary”, etc. are often used to describe several levels of subsidiaries. A senior subsidiary refers to a subsidiary/subsidiary of the ultimate parent company[Note 1], while a second-tier subsidiary is a subsidiary of a senior subsidiary: a “granddaughter” of the lead parent company.  Therefore, a third-tier subsidiary is a subsidiary of a second-tier subsidiary – a “great-granddaughter” of the lead parent company. The parent company holds a majority stake in the subsidiary, which means that it owns or controls more than half of its shares. In cases where a subsidiary is 100% owned by another company, the subsidiary is called a wholly-owned subsidiary. Subsidiaries become very important when it comes to an inverted triangular mortgage. Parent companies have several methods to control subsidiaries without violating their independence. The ability to fire board members and hire new ones is a useful method for a parent company to control its subsidiaries.