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What is a Subsidiary Company?

What is a Subsidiary Company?

Everything you need to know about subsidiary companies.

4th October 2017

Most people have heard of larger companies buying or starting smaller companies, these smaller companies usually turn into a ‘subsidiary’ of the larger ‘holding company’. It is important to understand if a company is a subsidiary as they might be controlled and financed by a larger company, this will impact decisions by individuals and companies wishing to work with or invest in the subsidiary or holding company.

If you are planning on registering any form of business and are looking to establish a greater legal protection for your business, LawPath can provide quick and simple solutions to register a company.

What is a Subsidiary?

There are two types of subsidiaries, these are different based on the level of financial ownership by the holding company. Where a holding company owns 100% of the subsidiary, the subsidiary will be considered a ‘wholly owned subsidiary’. Where a holding company only holds the majority of shares in the company it will just be called a ‘subsidiary’.

Often a subsidiary is created by the parent company in order to expand on the company’s existing products and services. It may also be because the parent company plans to strategically buy out another competing or upcoming company.

Because of the level of ownership, the holding company can have a major input into the management and running of the subsidiary. Generally, the holding company will appoint the directors of the subsidiary who will make the decisions for the company. Although directors will owe an obligation to the subsidiary, they will still be somewhat controlled in their decision making by a holding company who owns the majority share interest in the company.

Conclusion

If you are thinking of starting or investing into a company that may be considered a subsidiary, it is crucial to understand where your investment lies. LawPath can help you register a company through an easy to use, online application. For more information on parent companies, read our guide on ‘What are Ultimate Holding Companies?’.

Ready to register a company? Contact a LawPath consultant on 1800 529 728 to learn more about customising legal documents, obtaining a fixed-fee quote from one our network of 750+ expert lawyers or any other legal needs.

Author
Adam Lewis

Adam is a Consultant at Lawpath working with the Marketplace Team. With an interest in consumer and commercial law, he is currently completing a Bachelor of Commerce and Bachelor of Laws at Macquarie University.