Acquiring a stake in a subsidiary is different from a merger: the purchase usually costs the parent company a lower investment, and shareholder approval is not required to turn a company into a subsidiary, as would be the case in the event of a merger. No vote is required for the sale of the subsidiary. (a) control the majority of the voting rights contained therein solely on the basis of an agreement with other shareholders; or (b) has the right to appoint, appoint or remove a majority of its management team or board of directors, control may be direct (e.g. B an upper parent company directly controls the first-level subsidiary) or indirectly (e.B a higher-level parent company indirectly controls the second and lower levels of subsidiaries through first-tier subsidiaries). Recital 31 of Directive 2013/34/EU[16] provides that control should be based on the possession of a majority of voting rights, but that such control may also exist where there are agreements with other shareholders or members. In certain circumstances, control may be exercised effectively if the parent company holds a minority or no interest in the subsidiary. A subsidiary may have only one parent company; otherwise, the subsidiary is in fact a joint agreement (joint transaction or joint venture) over which two or more parties have joint control (IFRS 11(4)). Joint control is the contractual allocation of control of an agreement that exists only when decisions on the activities concerned require the unanimous consent of the parties sharing control. A parent company purchases or establishes a subsidiary to provide the parent company with specific synergies, such as.

B increased tax benefits, diversified risks or assets in the form of income, equipment or property. Nevertheless, subsidiaries are separate and distinct legal entities from their parent companies, which translates into the independence of their liabilities, taxes and governance. If a parent company has a subsidiary in a foreign country, the subsidiary must comply with the laws of the country in which it is registered and operates. The SEC states that this is only in rare cases, for example when. A subsidiary goes bankrupt, that a majority-owned subsidiary should not be consolidated. An unconsolidated subsidiary is a subsidiary whose financial data are not included in the financial statements of its parent company. Ownership of these companies is generally treated as an equity interest and reported as an asset on the parent company`s balance sheet. For regulatory reasons, unconsolidated subsidiaries are generally those in which the parent companies do not hold a significant stake. One of the means of controlling a subsidiary is obtained through the ownership of shares in the subsidiary by the parent company. These shares give the parent company the necessary votes to determine the composition of the board of directors of the subsidiary and thus exercise control. This gives rise to the general assumption that 50% plus one share is sufficient to establish a subsidiary.

However, there are other ways to achieve control, and the exact rules about what control is needed and how it is carried out can be complex (see below). A subsidiary may have its own subsidiaries, and these subsidiaries may in turn have their own subsidiaries. A parent company and all its subsidiaries together are called companies, although this term can also apply to cooperating companies and their subsidiaries holding different holdings. The second definition is broader. Under Section 1162 of the Companies Act of 2006, a company is a parent company over another company, a subsidiary, if: For example, Sidewalk Labs, a small start-up subsidiary of Alphabet, is looking to modernize public transit in the United States. The company has developed a public transportation management system that aggregates millions of data points from smartphones, cars, and Wi-Fi hotspots to analyze and predict where traffic and commuters are most gathered. The system can divert public transport such as buses to these congested areas to keep the public transport system moving efficiently. When in doubt, it is recommended that the inclusion or exclusion of a particular entity be made explicit. This is normal for mergers and acquisitions agreements relating to private equity investors or mutual funds when they are 100% shareholders (i.e. other portfolio investments may be inadvertently affected by a broad definition). In addition, the 50% threshold may be raised to exclude joint ventures and equity interests for which the partner shareholder has a blocking vote (in other words, if there is no “control” within the meaning of accounting standards such as IFRS). .