What is a Partially Owned Subsidiary ?

A partially owned subsidiary is a company that is majority-owned but not fully owned by another company, known as the parent company. This ownership structure is common in the corporate world and involves a parent company owning more than 50% but less than 100% of another company's shares.

Understanding the Parent Company

A parent company, sometimes referred to as a holding company, owns a controlling interest in one or more separate companies. When this interest is between 50% and 100%, the controlled company is a partially owned subsidiary. If the interest is 100%, it is a wholly owned subsidiary.

Multiple Subsidiaries and Parent Companies

A holding company can own multiple businesses, purchasing enough shares to gain a controlling interest. These controlled companies are often called "sister companies" or "daughter companies" and operate as distinct legal entities with their own operations, structures, and boards of directors.

Autonomy of a Partially Owned Subsidiary

Despite being under the significant influence of the parent company, a partially owned subsidiary maintains its own legal identity. It typically operates more independently, managing its own affairs, including liabilities and taxes, before reporting to the parent company.

Accounting Practices in Partially Owned Subsidiaries

Each partially owned subsidiary, being a separate entity, usually handles its accounting independently, from payroll to revenue reporting. However, parent companies often consolidate financial reports, merging data from subsidiaries for overall financial assessments.

Global Operations of Subsidiaries

When a subsidiary is based in a different country from the parent company, it must adhere to the laws and regulations of its location. This often requires adapting policies to ensure compliance across different national jurisdictions.

Benefits of Owning Partially Owned Subsidiaries

Partially owned subsidiaries offer several advantages, such as:

• Tax Efficiency: Financial consolidation can lead to favourable tax rates.
• Compartmentalized Liability: Using a subsidiary for riskier ventures can protect the parent company from direct liability.
• Cultural Flexibility: Different company cultures can be maintained for varied markets or types of work.
• Market Entry: Acquiring a controlling interest in a local company can be more cost-effective than starting a new operation from scratch.

Challenges with Partially Owned Subsidiaries

However, there are challenges, such as:

• Limited Control: Even with a controlling interest, the parent company may not have full control over the subsidiary’s operations.
• Decision-Making Delays: Approvals needing to go through two chains of command can slow down processes.
• Increased Legal and Tax Complexity: Owning subsidiaries adds complexity to legal and tax obligations, requiring more paperwork and potential costs.