What is a Subsidiary Company?

A subsidiary company is a distinct legal entity that is controlled by another company, known as the parent company or holding company. The parent company holds a majority of the subsidiary’s voting stock or shares, giving it control over the subsidiary’s operations and management.

Features of a Subsidiary Company:

• Ownership: A subsidiary company is owned, either wholly or partially, by another company, known as the parent company. The parent company typically holds a majority stake (usually more than 50%) in the subsidiary, giving it control over the subsidiary’s decision-making processes.
• Control and Management: While a subsidiary operates as a separate legal entity, it is ultimately subject to the control and influence of the parent company. The parent company may appoint members to the subsidiary’s board of directors and exercise control over major decisions, such as strategic direction, financial policies, and significant investments.
• Operational Independence: Subsidiary Companies maintain a degree of operational autonomy and independence from the parent company. They have their own management teams, employees, operational structures, and business strategies. However, major decisions may require approval from the parent company.
• Financial Reporting: Subsidiaries maintain their own financial records and produce separate financial statements, including income statements, balance sheets, and cash flow statements. However, these financial statements may be consolidated into the financial reports of the parent company to provide a comprehensive view of the overall group’s financial performance.

Holding and Subsidiary Companies are often used synonymously. A Holding Company owns and controls other companies (subsidiaries) but typically does not engage in their day-to-day operations; whereas, a Subsidiary company is a separate legal entity that operates under the control and influence of the parent or holding company, with its own management and operational structures.