What is a Subsidiary Company?

A subsidiary company is a business entity that is controlled by another organization through ownership of a majority of its common stock. If the owning entity has acquired 100% of the shares of a subsidiary, the subsidiary is referred to as a wholly-owned subsidiary. The owner of a subsidiary company is referred to as the parent company or a holding company. A parent company may own dozens or even hundreds of subsidiary companies.

Subsidiary Company Advantages

There are several advantages to using the subsidiary company structure, which are as follows:

Different operational structure. The parent company can install an operational structure in a subsidiary that differs from what it is using at the parent level. This can be useful for tailoring operations to the market served by the subsidiary.
Reduced risk. The corporate structure of a subsidiary can be used to contain risk within that entity. Under this structure, the risks of the subsidiary do not spill over into the rest of the corporate structure.
Preparation for sale. The parent company can collect certain assets into a subsidiary in order to present them for sale to outside parties. This allows the parent to sell the entire subsidiary entity.