Subsidiary
IntermediateA subsidiary is a company controlled by another company, called the parent, usually because the parent owns more than half of its voting shares.
Businesses often set up or acquire subsidiaries to operate in different countries, run separate product lines, manage legal or tax issues or limit risk. Each subsidiary is a separate legal entity with its own assets and liabilities.
A wholly owned subsidiary is one in which the parent owns 100% of the shares. A partly owned subsidiary has other shareholders as well. For example, if a parent owns 80% of a subsidiary, the remaining 20% belongs to outside investors.
Control, rather than ownership alone, determines whether a company is a subsidiary for accounting purposes. A parent might control a company with less than half the shares if it can appoint most of the board, for instance.
The parent includes all its subsidiaries in its consolidated financial statements, combining their results line by line. The share of a partly owned subsidiary belonging to other shareholders is reported as noncontrolling interest.
Because subsidiaries are separate legal entities, the parent is not automatically responsible for their debts, unless it has given guarantees. This is one reason groups use subsidiaries to isolate risky activities.
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