In the dynamic business world, companies play a vital role in the economy boost and the development of various sectors. Among the multitude of business structures, subsidiaries have emerged as a strategic component for the expansion and diversification of organizations.
In this article, we will explore in detail what is a subsidiary company and we will analyze the functions they perform within the business dynamics. From their relationship with the parent company to their role in the economy and finance, we’ll discover how these independent legal entities contribute to the success and growth of organizations.
Meaning and definition of subsidiary company
An affiliate company is a business or corporate entity that is controlled, in whole or in part, by another company, known as matrix. The parent usually has a majority stake in the subsidiary and exercises some degree of control over its operations and strategic decisions.
The subsidiary is a legally independent entitywith its own register and Organizational structure, but is linked to the parent company through an ownership and control relationship. The matrix can have one or several subsidiaries, depending on its structure and business strategy.
The relationship between a parent company and its subsidiary can offer several benefits. For example, let the matrix expand into new markets or market segments through the subsidiary. It can also provide opportunities to share resources, knowledge, and experience between the parent and the subsidiary. In addition, the subsidiary can be a way to limit the legal and financial responsibility of the parent company in certain activities or geographic areas.
It is important to note that subsidiaries are separate legal entities, so they are subject to laws and regulations of the country where they operate. Although they are linked to the parent company, they have some autonomy in their daily operations and decision-making, within the limits set by the parent company.
What is the goal of a subsidiary company? – Functions
The purpose of a subsidiary is to perform key functions within the overall business structure. These functions are aimed at fulfilling a set of strategic purposes established by the mother company. Some of the more prominent functions of an affiliate company include:
geographic expansion: A subsidiary company allows the parent company to expand and establish a local presence in different regions or countries. This makes it easier to adapt to the particularities of the local market, comply with specific regulations and take advantage of growth opportunities.
Market diversification: Through subsidiaries, companies can diversify their operations into new potential markets and sectors. This reduces dependence on a single market and minimizes the risks associated with economic volatility or changes in consumer preferences.
Access to local resources and knowledge: Subsidiaries provide the parent company with access to human resources, infrastructure and local knowledge. This facilitates the understanding of consumer needs and preferences, as well as the adaptation of products, services and marketing strategies at the local level.
Tax and legal optimization: Affiliated companies can allow for a more efficient tax and legal structure. Depending on international regulations and treaties, the parent company may benefit from tax advantages or reduce exposure to legal risks in certain markets.
Development of new lines of business: Subsidiaries can serve as platforms for the exploration and development of new lines of business. This allows the parent company to diversify its portfolio of products or services, explore innovations and take advantage of new market and financial stand-by opportunities.
What are the characteristics of a subsidiary company?
The characteristics of a subsidiary company are determined by their relationship with the parent company and its status as an independent business entity.
Some of the salient features of a subsidiary include its link to the parent company, as it is linked through an ownership and control relationship. Also, it’s a separate legal entitywith its own registration and organizational structure, and is governed by the law and regulations of the country where it operates.
The subsidiary has a strategic purpose within the business structure and has some autonomy in its daily operations and decision-making. You can also share resources, knowledge, and experience with the parent company.
Although the parent company may have a legal and financial responsibility limited in relation to the subsidiary, the subsidiary entity is responsible for its own operations and decisions. Affiliated companies offer strategic benefits, such as expansion into new markets and risk diversification. However, they also face challenges in terms of balancing autonomy with the guidelines of the parent company and effective coordination between the various organizational units.
What are the types of affiliate companies?
There are different types of subsidiary companies, which are classified based on their relationship with the parent company and the degree of control it exercises over them. Some of the most common types of affiliate companies are:
- Wholly owned subsidiary of parent company: In this case, the parent company owns 100% of the shares or participation in the subsidiary. The parent company exercises full control over the subsidiary and makes key strategic and operational decisions.
Majority subsidiary: In this type of subsidiary, the parent company owns a majority stake in the shares or participation of the subsidiary, generally more than 50%. Although the parent company has significant control, there may be other shareholders or investors with a minority stake in the subsidiary.
Jointly owned subsidiary: In this case, the parent company shares ownership of the subsidiary with another company or outside investors. Both parties have a shareholding in the subsidiary and share control and decision-making.
joint subsidiary: It is a company in which the parent company associates with another company or investors to establish and operate the subsidiary jointly. Both parties share ownership, control and responsibilities of the subsidiary.
Subsidiary Affiliate:It is a company that is controlled in whole or in part by another company, but maintains a separate legal identity. The parent company has influence over the subsidiary, but the subsidiary has a degree of autonomy in its operations.
What is the difference between a subsidiary and a subsidiary company?
The difference between a subsidiary company and is its legal structure and degree of control by the parent company. A subsidiary company is a separate business entity that is linked to a parent company through an ownership and control relationship. The parent generally owns a majority stake in the subsidiary and exercises some degree of control over its operations and strategic decisions. Although the parent company has influence over the subsidiary, the latter maintains its own legal identity and may have some autonomy in its daily operations.
On the other hand, a subsidiary company is wholly or partly controlled by another company, known as the parent company. In the case of a subsidiary, the parent company owns a significant stake to exercise complete control over the subsidiary. This implies that the matrix has decision-making power over operations and strategies. of the subsidiary, and can directly influence its financial, operating and administrative policies.
Examples of affiliated companies
Nestle Purina PetCare Company: It is a subsidiary of Nestlé, which is dedicated to the manufacture of food and products for pets.
Samsung Electronics America: This is the US subsidiary of Samsung Electronics, which is responsible for the distribution and marketing of consumer electronics in the United States.
Google Ventures: It is the venture capital subsidiary of Alphabet Inc., the parent company of Google. It is dedicated to investing in startups and emerging companies with high potential.
BMW Financial Services: This subsidiary of the BMW Group specializes in financial and leasing services for automobiles of the BMW brand.
Microsoft Studios: It is a subsidiary of Microsoft Corporation and is responsible for the development and publication of video games and multimedia content for Microsoft platforms.
Amazon Web Services Mexico: It is the subsidiary of Amazon Web Services (AWS) in Mexico, which provides cloud computing management services to companies and organizations in the country.