What is a subsidiary?

A subsidiary is a company whose majority share (> 50%) is controlled by another company or its parent company . Subsidiaries are commonly referred to as subsidiary companies .

Function of Subsidiaries

Subsidiaries are usually formed by conglomerates, a business entity that has business lines in various fields. There are several advantages possessed by the existence of a subsidiary, namely:

  1. The formation of subsidiaries makes operations in one business line more focused than just being separated as divisions. With this, operational activities carried out by each subsidiary will also become more efficient.
  2. The decision making process of each subsidiary will take place more precisely and accurately.
  3. The existence of a subsidiary raises risk independence. Each subsidiary will avoid risks such as lawsuits faced by other subsidiaries.
  4. By becoming part of a subsidiary ofa parent company, a subsidiary will more easily get access to capital .

Difference in Subsidiary (Subsidiary) and Joint Venture

Although both are entities that are formed by other entities to achieve business objectives, there are differences between subsidiaries and joint ventures . Subsidiary is an entity formed for example to produce different and specific goods and services. Meanwhile, a joint venture is more like a cooperation or partnership between two or more entities. Some companies or individuals can have a contractual agreement and contribute capital to form a business.

Generally, joint ventures are formed for specific goals and their existence can end when they have been achieved. One example of the JV is one of the consortia in the MRT construction project in Jakarta, namely Shimizu-Obayashi-Wijaya Karya-Jaya Construction Joint Venture.

 

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