Subsidiary

A **subsidiary** is a legally distinct company whose voting shares are controlled by another company known as its parent. Control is most commonly evidenced by ownership of more than 50% of the voting equity, but it can also arise through shareholder agreements, golden shares, or contractual rights that allow the parent to appoint a majority of directors.

Subsidiaries preserve a separate legal personality from their parent, which means they have their own assets, liabilities, employees, and tax registrations. This separation is one of the main reasons groups operate through subsidiaries: it ring-fences operational and litigation risk so that creditors of one subsidiary cannot generally pursue assets of the parent or sister companies, except in cases of veil-piercing or fraud.

For accounting purposes, the parent must consolidate the subsidiary line by line, recognizing 100% of its assets and liabilities and showing any minority stake as a non-controlling interest. For tax purposes, many jurisdictions allow group taxation regimes that let subsidiaries and their parent file a single combined return or surrender losses among themselves.

Founders meet subsidiaries when they expand to a new country and form a local entity, when they spin off a product line into its own company, or when they acquire a competitor. CFOs work with the concept every closing cycle as they consolidate the subsidiary's books. Lawyers care about it when negotiating parent guarantees, indemnities, and intercompany loans. Tax advisors think about whether the subsidiary qualifies for participation exemption, group relief, or controlled foreign corporation rules.