Subsidiary Meaning
The subsidiary meaning refers to a company that is owned and controlled by another company, known as the parent company or holding company. In most cases, the parent company owns more than 50 percent of the subsidiary’s shares, which gives it decision-making power.
Even though a affiliate is controlled by a parent company, it is still a separate legal entity. This means it can have its own name, employees, bank accounts, contracts, and legal responsibilities.
In simple terms, a company that operates independently but follows the overall direction of its parent company.
What is a Subsidiary Company?
A subsidiary company is a business that is partly or fully owned by another company, but where the parent company has major control. This control usually comes from owning a majority of the company’s shares.
The subsidiary company meaning becomes important in large organizations that operate in multiple countries or industries. Instead of running everything under one company name, businesses create subsidiaries to manage different regions, products, or services.
From an HR point of view, a subsidiary may:
Hire its own employees
Follow local labor laws
Run payroll and compliance separately
Still follow group-level HR policies set by the parent company
This structure helps businesses grow while staying legally and operationally organized.
Types of Subsidiary Company
There are different types of subsidiary companies, based on ownership and control:
1. Wholly Owned Subsidiary
In this type, the parent company owns 100 percent of the subsidiary’s shares.
The parent has full control over decisions, policies, and strategy.
Example:
A global HR tech company opens a fully owned subsidiary in India to manage local operations.
2. Majority-Owned Subsidiary
Here, the parent company owns more than 50 percent but less than 100 percent of shares.
The parent still controls major decisions, but minority shareholders also exist.
This is a common structure when companies expand through partnerships or investments.
3. Foreign Subsidiary
A foreign subsidiary is set up in another country.
It follows local laws, tax rules, and labor regulations of that country.
Many multinational companies create foreign subsidiaries to manage regional HR, payroll, and compliance efficiently.
Purpose of Subsidiary Companies
Companies create subsidiaries for many strategic reasons. Some of the most common purposes include:
1. Business Expansion
Subsidiaries help companies enter new markets or countries without affecting the parent company’s core operations.
2. Risk Control
If a affiliate faces losses or legal issues, the parent company’s risk is limited. This protects the main business.
3. Better Legal Compliance
Different countries have different employment and tax laws. A sub helps businesses follow local rules more easily.
4. Operational Focus
5. HR and Workforce Management
Subsidiaries allow companies to manage hiring, payroll, and benefits according to local workforce needs while maintaining group-level HR standards.
Each subsidiary can focus on a specific product, service, or region, improving efficiency and management.
Advantages and Disadvantages of Subsidiary Companies
Below is a simple comparison showing the advantages and disadvantages, including the difference between holding company and subsidiary company roles.
| Aspect | Advantages | Disadvantages |
|---|---|---|
| Legal Structure | Separate legal identity reduces risk for parent | Requires separate registrations and filings |
| Business Control | Parent company maintains decision control | Decision delays due to approvals |
| Market Expansion | Easy entry into new regions | Higher setup and operating costs |
| HR Operations | Local hiring and compliance flexibility | Need to manage multiple HR systems |
| Financial Risk | Losses stay limited to the subsidiary | Accounting and audits become complex |
Difference Between Holding Company and Subsidiary Company
A holding company owns and controls other companies but usually does not run daily operations.
A subsidiary company runs day-to-day business activities but follows the control of the holding company.
Subsidiary Company Examples
Here are a few simple subsidiary company examples:
1. Tata Sons and TCS
Holding company: Tata Sons
Subsidiary: Tata Consultancy Services (TCS)
TCS is a well-known sub company of Tata Sons. It runs its own business operations, hires employees, and manages clients, but Tata Sons holds majority ownership and strategic control.
2. Reliance Industries and Jio
Parent company: Reliance Industries Limited
Subsidiary: Reliance Jio Infocomm Limited
Reliance Jio is a affiliate of Reliance Industries. Jio manages telecom services independently, while Reliance Industries oversees investments and long-term direction.
3. Google and YouTube
Parent company: Alphabet Inc.
Subsidiary: YouTube
YouTube operates as a subsidiary of Alphabet Inc. While YouTube has its own management, employees, and operations, Alphabet controls major decisions. This allows YouTube to grow independently while still aligning with Alphabet’s overall strategy.
Conclusion
A subsidiary plays a key role in modern business structures. It allows companies to grow, manage risks, and stay compliant while maintaining operational flexibility. Understanding the subsidiary meaning, subsidiary definition, and the difference between holding company and subsidiary company is essential for business leaders, HR teams, and growing organizations.
By using subsidiaries, companies can balance control with independence, making it easier to manage people, processes, and expansion in a structured way.
Frequently Asked Questions (FAQs)
What is a subsidiary in business?
A subsidiary in business is a company that is owned and controlled by another company, where the parent company holds majority ownership and decision-making power.
Is a 50% owned company a subsidiary?
No, a company with exactly 50% ownership is usually not considered a subsidiary unless additional voting rights or control agreements exist.
What is the synonym of subsidiary?
Common synonyms of subsidiary include subsidiary company, controlled company, or affiliate, depending on the level of ownership and control.
What is subsidiary in law?
In law, a subsidiary is a separate legal entity that is controlled by another company through majority shareholding or voting power.