Subsidiary: Difference between revisions
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'''Subsidiary''' is an [[organization]] controlled by another [[company]]. Control is here defined as the ability to govern the financial and operating businesses, including [[management]], aimed at obtaining greater benefits from its activities. It means also the ability to vote upon company's position in the event of an opposition in subsidiary. This ability, in most cases will result from the possession of at least 50% of the shares entitled to vote. It may happen, however, in some cases that the control can be exercised having a stake of less than 50%, which is referred to as minority control. The subsidiary has its own separate legal personality. In contrast branch company has assets and liabilities which are part of the parent company. Possession of a subsidiary is associated with certain ineffectiveness (duplication of resources, division of internal control and gaps in the management [[system]]). | '''Subsidiary''' is an [[organization]] controlled by another [[company]]. Control is here defined as the ability to govern the financial and operating businesses, including [[management]], aimed at obtaining greater benefits from its activities. It means also the ability to vote upon company's position in the event of an opposition in subsidiary. This ability, in most cases will result from the possession of at least 50% of the shares entitled to vote. It may happen, however, in some cases that the control can be exercised having a stake of less than 50%, which is referred to as minority control. The subsidiary has its own separate legal personality. In contrast branch company has assets and liabilities which are part of the parent company. Possession of a subsidiary is associated with certain ineffectiveness (duplication of resources, division of internal control and gaps in the management [[system]]). | ||
==Reasons for creating subsidiaries== | ==Reasons for creating subsidiaries== | ||
Main reasons for creating subsidiaries are: | Main reasons for creating subsidiaries are: | ||
* activities on separate markets | * activities on separate markets | ||
* obtaining financing or splitting of [[risk]] between the owners | * obtaining [[financing]] or splitting of [[risk]] between the owners | ||
* protection of the parent company from any withdrawal of the creditors of the subsidiary | * protection of the parent company from any withdrawal of the creditors of the subsidiary | ||
* [[diversification]] of the decisions of the [[Board]] | * [[diversification]] of the decisions of the [[Board]] | ||
==Reporting== | ==Reporting== | ||
The financial statements of the majority of subsidiaries are consolidated in the financial statements of the parent, it presents [[Company situation analysis|situation of both entities]] as a single economic unit. However, when it comes to financing, parent company lenders want to have measurable way to determine what impact on parent company's cash flow have the dividends or management fees collected from a subsidiary. For the parent company shares of subsidiary, represent the value but only to the extent to which they can sell on the [[market]]. This is only a potential source of cash because the liquidity of such shares is sometimes questionable. Treatment of both units as one unit by the lender can only occur when a subsidiary has the parent company's guarantees. | The financial statements of the majority of subsidiaries are consolidated in the financial statements of the parent, it presents [[Company situation analysis|situation of both entities]] as a single economic unit. However, when it comes to financing, parent company lenders want to have measurable way to determine what impact on parent company's cash flow have the dividends or management fees collected from a subsidiary. For the parent company shares of subsidiary, represent the value but only to the extent to which they can sell on the [[market]]. This is only a potential source of cash because the liquidity of such shares is sometimes questionable. Treatment of both units as one unit by the lender can only occur when a subsidiary has the parent company's guarantees. | ||
{{infobox5|list1={{i5link|a=[[Secret company]]}} — {{i5link|a=[[Entity theory]]}} — {{i5link|a=[[Ownership interest]]}} — {{i5link|a=[[Transfer of risk]]}} — {{i5link|a=[[Shareholder loan]]}} — {{i5link|a=[[Bad debt recovery]]}} — {{i5link|a=[[Enterprise]]}} — {{i5link|a=[[Advantages of corporation]]}} — {{i5link|a=[[Working interests]]}} }} | |||
==References== | ==References== | ||
* Birkinshaw, J., & Hood, N. (1998). ''[https://www.researchgate.net/profile/Julian_Birkinshaw/publication/200465449_Multinational_Subsidiary_Evolution_Capability_and_Charter_Change_in_Foreign-Owned_Subsidiary_Companies/links/0046351a992fbdfda4000000.pdf Multinational subsidiary evolution: Capability and charter change in foreign-owned subsidiary companies]''. Academy of management review, 23(4), 773-795. | * Birkinshaw, J., & Hood, N. (1998). ''[https://www.researchgate.net/profile/Julian_Birkinshaw/publication/200465449_Multinational_Subsidiary_Evolution_Capability_and_Charter_Change_in_Foreign-Owned_Subsidiary_Companies/links/0046351a992fbdfda4000000.pdf Multinational subsidiary evolution: Capability and charter change in foreign-owned subsidiary companies]''. Academy of management review, 23(4), 773-795. | ||
[[Category:Financial management]] | [[Category:Financial management]] | ||
[[Category:Strategic management]] | [[Category:Strategic management]] | ||
[[pl:Jednostka zależna]] | [[pl:Jednostka zależna]] | ||
Latest revision as of 05:22, 18 November 2023
Subsidiary is an organization controlled by another company. Control is here defined as the ability to govern the financial and operating businesses, including management, aimed at obtaining greater benefits from its activities. It means also the ability to vote upon company's position in the event of an opposition in subsidiary. This ability, in most cases will result from the possession of at least 50% of the shares entitled to vote. It may happen, however, in some cases that the control can be exercised having a stake of less than 50%, which is referred to as minority control. The subsidiary has its own separate legal personality. In contrast branch company has assets and liabilities which are part of the parent company. Possession of a subsidiary is associated with certain ineffectiveness (duplication of resources, division of internal control and gaps in the management system).
Reasons for creating subsidiaries
Main reasons for creating subsidiaries are:
- activities on separate markets
- obtaining financing or splitting of risk between the owners
- protection of the parent company from any withdrawal of the creditors of the subsidiary
- diversification of the decisions of the Board
Reporting
The financial statements of the majority of subsidiaries are consolidated in the financial statements of the parent, it presents situation of both entities as a single economic unit. However, when it comes to financing, parent company lenders want to have measurable way to determine what impact on parent company's cash flow have the dividends or management fees collected from a subsidiary. For the parent company shares of subsidiary, represent the value but only to the extent to which they can sell on the market. This is only a potential source of cash because the liquidity of such shares is sometimes questionable. Treatment of both units as one unit by the lender can only occur when a subsidiary has the parent company's guarantees.
| Subsidiary — recommended articles |
| Secret company — Entity theory — Ownership interest — Transfer of risk — Shareholder loan — Bad debt recovery — Enterprise — Advantages of corporation — Working interests |
References
- Birkinshaw, J., & Hood, N. (1998). Multinational subsidiary evolution: Capability and charter change in foreign-owned subsidiary companies. Academy of management review, 23(4), 773-795.
