Relationship between holding companies and subsidiaries

By Albert Phung Updated December 22, — The terms affiliate, associate, and subsidiary refer to the degree of ownership that a parent company holds in another company. In most cases, affiliate and associate are used synonymously to describe a company whose parent only possesses a minority stake in the ownership of the company. For example, the Walt Disney Corp.

Relationship between holding companies and subsidiaries

What is the difference between a subsidiary and a sister company? By Investopedia Updated August 17, — 1: The difference between a subsidiary and a sister company lies in their relationship to the parent company and to each other. A parent company is the owner of separate corporations known as subsidiaries.

Subsidiaries are sometimes deliberately formed by the parent company to segment its business. While the parent company is commonly larger than any of its subsidiaries, it actually does not have to be. A subsidiary functions as a separate legal entity rather than as a division of the parent company.

A subsidiary company is sometimes referred to as a daughter company. A subsidiary company is also capable of having controlling interest in its own set of subsidiary companies.

Advantages for companies in having operational control over a subsidiary company include the right of the parent company to file a consolidated tax return.

This type of corporate tax return offers more simplified filing for both the parent company and its subsidiaries, and it also offers tax benefits not otherwise available to the parent company.

Sister companies are subsidiary companies that are related by virtue of being owned by the same parent company.


Each sister company is independent of the other sister companies, and the only relationship between them may be their common ownership by the parent company. Sister companies may produce a range of products that are quite different from each other or from those of their parent. Sister companies may even be competitors.

However, there are sometimes arrangements between sister companies for information- or resource-sharing or special pricing.

Search form There are companies that owned a small proportion of stock of another company but gradually acquired more shares of that company and finally became a holding company while the company that they hold in this manner is referred to as subsidiary company.
User Contributions: Useful Resources Relationships in company structures In practice, companies are frequently owned by other companies.
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In instances where sister companies have a common target marketthey can reap the benefits of reduced costs from sharing marketing and advertising materials, for example. They may use common vendors or suppliers, as well.The Board is authorized, upon application by a bank holding company, to extend the two year period referred to in paragraph (2) above from time to time as to such bank holding company for not more than one year at a time, if, in its judgment, such an extension would not be detrimental to the public interest, but no such extensions shall in the aggregate exceed three years.

Separate Entity of Parent and Subsidiary Corporations N important question in corporation law is the effect of the connection between a parent corporation and its. A holding company is a corporation that is organized for the purpose of owning stock in other corporations.

A company may become a holding company by acquiring enough voting stock in another company to exercise control of its operations, or by forming a new corporation and retaining all or part of the new corporation's stock.

The legislative definition of holding companies and subsidiaries is to be found in the Companies Act [19] at section 1, Companies Act at section [20] and the Companies Act at section [21].

All these Acts define holding and subsidiary companies using almost the same formulation of voting rights and control of board. A pure holding company is established only to hold shares in other companies.

Relationship between holding companies and subsidiaries

A large holding company can control many individual companies. For example, Sears Holdings Corp. has among its subsidiaries Kmart Corp., Lands’ End, Inc. and Sears, Roebuck and Co.

If you look at the relationship between these companies one can clearly see which stands as the parent and which stands as the subsidiary. By definition a subsidiary is a corporation which is controlled by another company while a parent company is a corporation who has control over another company.

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