A subsidiary company is one that is controlled by another company called the parent company to which it belongs, in most cases because it controls a large number of shares of the former and is positioned as dominant.
However, the subsidiary company usually has a high level of independence by not having corporate ties with the parent company. This occurs because the subsidiary has its own management and control bodies, in addition to its own capital .
The existence of a business operation based on the creation of subsidiary companies and subsidiaries is important when it comes to understanding the existence of large international corporations or corporate holding companies . Although the parent company often controls more than half of the subsidiary’s shares, it usually delegates control and responsibility over its financial or operational decisions.
The existence of this business practice responds to different reasons, based mainly on the search for higher business volumes and risk diversification . Alternatively, it also serves as a way to carry out a vertical integration process .
An important aspect to highlight is the difference between the concepts of subsidiary company and subsidiary company . The differentiating key is that the parent company is controlled and managed directly by the parent company, while in the case of the subordinate, the comments made in the previous paragraphs occur.
Examples of subsidiary company
Consumer electronics giant Apple has subsidiary companies that are responsible for the production of mechanical and electronic components that the parent company will later use to assemble its phones, tablets and laptops. This subsidiary operates autonomously and follows its own business life alternately to provide components to its parent company.
Another descriptive example of the utility that can be given to the existence of subsidiary companies is that offered by the well-known tobacco company Philip Morris . This large company decided to take a large share of Coltabaco’s shareholding, a Colombian company in the same sector. In this way, he managed to extend his work map to Latin America, without interfering with the subordinate’s usual work.