Understanding Subsidiaries: Types, Purposes, and Examples
A subsidiary is a company that is owned and controlled by another company, known as the parent company. The subsidiary company operates as a separate legal entity from the parent company, but the parent company has a majority stake in the subsidiary's shares and can exercise control over the subsidiary's operations and decision-making.
There are several types of subsidiaries, including:
1. Wholly owned subsidiaries: These are subsidiaries that are entirely owned by the parent company.
2. Partly owned subsidiaries: These are subsidiaries that are owned by the parent company, but also have other shareholders.
3. Joint venture subsidiaries: These are subsidiaries that are jointly owned by the parent company and one or more other companies.
4. Dormant subsidiaries: These are subsidiaries that do not have any active business operations, but exist for legal or financial reasons.
Subsidiaries can be used for a variety of purposes, including:
1. Expanding into new markets or industries: By acquiring a subsidiary in a specific market or industry, the parent company can gain access to new customers, technologies, and expertise.
2. Diversifying the business: Subsidiaries can provide a hedge against risks associated with the parent company's core business by offering a different product or service mix.
3. Accessing new resources: Subsidiaries may have access to resources that are not available to the parent company, such as specialized expertise, technology, or intellectual property.
4. Reducing tax liability: By locating subsidiaries in low-tax jurisdictions, the parent company can reduce its overall tax liability.
5. Managing risk: Subsidiaries can be used to manage risks associated with specific business activities or markets.
Some examples of well-known companies that have subsidiaries include:
1. Google (Alphabet Inc.): Google has several subsidiaries, including YouTube, Android, and Waze.
2. Amazon (Amazon.com Inc.): Amazon has several subsidiaries, including Zappos, Twitch, and Whole Foods Market.
3. Apple (Apple Inc.): Apple has several subsidiaries, including Beats Electronics and FileMaker.
4. Microsoft (Microsoft Corporation): Microsoft has several subsidiaries, including LinkedIn and Minecraft.
5. Facebook (Facebook Inc.): Facebook has several subsidiaries, including Instagram and WhatsApp.
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