 have created a collective of 370,000 subsidiaries, many of which operate in the U.S. Before you follow in their footsteps, you must understand not only what a subsidiary company is but also how to manage one effectively.

A subsidiary company is owned or controlled by a parent or 

. Usually, the parent company will own more than 50% of the subsidiary company. This gives the parent organization the controlling share of the subsidiary. Sometimes, control is achieved simply by being the majority shareholder. When a parent organization owns all common stock of a company, it is known as a ‘wholly owned' subsidiary.

The difference between subsidiaries and other entities

 a company that is at least 50% owned by a parent or holding company.

A subsidiary company is either partially or wholly owned by another company. That company can be either a parent company, which is its own functioning company, or a holding company, which solely controls other companies and investments.

To be a subsidiary, a company has to be at least 50% owned by the parent or holding company. Subsidiaries 100% owned are considered wholly owned subsidiaries.

Subsidiaries are crucial in how multinational corporations structure their operations, manage risk and expand into new markets. While owned or controlled by a parent company, subsidiaries maintain some independence. Understanding the core characteristics of a subsidiary helps clarify precisely what a subsidiary is, how it functions and why it’s strategically crucial for businesses.

A subsidiary is legally distinct from its parent company, even if wholly owned. This structure allows it to enter into contracts, own assets and be sued independently.

Subsidiaries typically maintain their own balance sheets and income statements, though their financials may be consolidated into their parent company’s reports.

Most subsidiaries have their own leadership and may operate under a different name or brand, primarily when serving distinct markets or customer segments.

Depending on the business strategy and investment structure, a parent company may own 100% of a subsidiary (wholly owned) or a controlling stake (usually over 50%).

One key benefit of forming subsidiaries is risk management; liabilities incurred by the subsidiary generally do not transfer to the parent company.

Distinguishing between a subsidiary and other business relationships is key to navigating corporate structures. Below are comparisons between subsidiaries and commonly confused entities:

A parent company controls a subsidiary, while a sister company is another 

owned by the same parent. The key distinction is that sister companies are peers — not in a controlling relationship with each other — though they may collaborate or share resources.

An affiliate is a company where another firm holds a minority interest, typically less than 50%. In contrast, a subsidiary involves majority or full ownership, giving the parent company significant or total control over decisions and operations.

A division is an internal segment of a company, not a separate 

. It operates under the parent company’s name and legal identity. On the other hand, a subsidiary is a standalone legal entity, even if wholly owned, and often has its own branding, financials and liability.

A subsidiary and a parent company are legally separate entities. This means that individual organizations pay taxes and debt, limiting shared liabilities between the companies. Subsidiary companies will have independence from the parent company and, in many cases, are individual brands. However, the parent company will naturally influence the subsidiary’s operations, including 

. The parent company can elect the board of directors as the major shareholder and drive the overall business strategy.

Subsidiaries are a commonly used structure for both national and international corporations. Tiers of subsidiaries group a range of industries within a multinational conglomerate. The structure can also bring together companies from within one sector in a corporate group.

How does a parent company control its subsidiary?

A parent company controls its subsidiary by owning all or most of its stock. If that’s the case, the parent company can control most subsidiary operations, including assigning the board members.

The parent company can also include clauses in the subsidiary’s Articles of Incorporation to assign certain powers, such as requiring the parent company’s approval to pass bylaw changes or take certain actions.

That said, parent companies reap the benefits of subsidiaries when the subsidiary can operate more independently. This allows the subsidiary to set its own corporate strategy and objectives, which often significantly differ from those of the parent company.

Can a subsidiary be liable for a parent company?

Typically, a subsidiary cannot be liable for a parent company. Because they’re legally separate entities, they retain their own liability, meaning the parent company usually isn’t liable for the subsidiary’s actions either.

A subsidiary can leave a parent company, but the structure of the subsidiary/parent company relationship makes this uncommon. To leave the parent company, the subsidiary’s shareholders and board of directors would have to approve it. However, the parent company is among the shareholders — and, sometimes, the only shareholder — so it’s unlikely that a vote to leave the parent company would pass.

A subsidiary can sue a parent company, but it’s exceedingly rare and depends on the subsidiary’s Articles of Incorporation. To sue, the subsidiary has to prove damages due to the parent company — a difficult thing to do because the parent company owns the subsidiary. However, it’s still possible to sue if the parent company’s actions directly interfered with the subsidiary’s contractual obligations and the subsidiary suffered damages as a result.

Subsidiary companies will be owned by either a parent company or a holding corporation. A wholly-owned subsidiary company will be entirely owned by the parent or holding corporation. In other cases, parent companies will have the controlling share of a subsidiary company. In practice, this means owning more than half of a company’s common stock. So, by definition, parent companies have majority ownership or control of a subsidiary.

As the major shareholder, parent companies will have the deciding vote when electing the directors in the boardroom. In many cases, a member sits on the board of both the parent and subsidiary companies. Because of this, parent companies will significantly influence the strategic direction of subsidiaries, including any 

Get a clear, jargon-free guide that walks you through what to look for in entity management tools — and how to choose one that actually fits your team’s needs.

New to entity software?

There are two types of subsidiary companies: wholly owned and partially owned. The primary difference lies in the parent or holding company's ownership stake.

 A wholly-owned subsidiary is 100% owned by the parent corporation. The parent company holds all common stock, which means they have sole influence over the subsidiary’s operations. This is generally achieved through a parent company acquiring full control of a company or by founding the subsidiary company itself. The wholly-owned subsidiary company is still legally recognized as its own entity.

A normal subsidiary is when a parent or holding corporation owns more than half of the common stock. This means the subsidiary will have multiple shareholders who can influence the corporation’s ongoing operations.

What is the purpose of a subsidiary company?

The main benefit of subsidiary companies is that they are different 

 from their parent company. This means the two companies can limit shared liabilities or obligations and will be separate in terms of regulation or tax. This legally recognized separation is a key 

difference between a branch and a subsidiary

Some other common reasons parent companies also use subsidiaries for the following purposes:

In practice, having two distinct legal entities limits the liability of both the parent and subsidiary companies. Keeping companies separate can help to insulate the holding company from potential financial or legal issues faced by a subsidiary company.

 In the case of multinational corporations, subsidiary companies will align themselves with 

 Subsidiary companies are a common way for corporations to expand into international markets. As independent entities, the risk for the wider corporation is minimized.

 Subsidiary companies are often distinct brands positioned under an overall holding company. These brands can benefit from the synergy between different parts of the larger corporate group but also retain the benefit of independence. Subsidiaries can be experimental brands or products, as financial liabilities are contained. As separate legal entities, subsidiary companies are more straightforward to manage or sell to.

 Instead of investing heavily in internal research and development, parent companies often acquire companies with specific area expertise. An example would be a larger company purchasing a small firm that produces a specific technology or digital tool. Subsidiary companies allow parent corporations to diversify their business but isolate the potential risks.

Subsidiaries have the potential for favorable tax rates due to their separate setting from the parent company. As an incorporated company in its own right, a subsidiary company can take advantage of more favorable corporate tax rates compared to where the parent company is based. This is a key part of 

 between parent companies and subsidiaries.

Allows limited financial liability for the wider holding corporation, containing potential losses within the subsidiary company.

 Keep a specific brand or product as its own legal entity to maintain independence and make selling straightforward.

 Subsidiaries focusing on specific products or technology development can strengthen the corporation as a whole.

A subsidiary company may sound like a win-win. While it’s true that they shelter the parent from liabilities, offer tax benefits and facilitate growth, they also greatly complicate the corporate structure. Corporations considering a subsidiary should consider both the pros and cons of a subsidiary structure before moving forward.

Examples of parent and subsidiary companies

Many modern businesses have subsidiaries; some offer liability protection, while others allow the parent company to reach new industries or territories. For example, PepsiCo isn’t just a company; it’s a conglomerate that owns more than one subsidiary company, including Mountain Dew, Frito-Lay and even Quaker Foods.

More common examples of subsidiary companies include:

How to find the subsidiaries of a company

The Securities and Exchange Commission (SEC) 

 to disclose their subsidiaries, including when they acquire or dispose of a subsidiary. As a result, this information is publicly available, and you can find the subsidiaries of a company if you know where to look.

A company’s subsidiaries are usually listed on:

Annual reports are a hotspot for lists of subsidiaries. You can also check press releases, as a company will likely mention subsidiary updates there.

You can search and download documents from the 

, including registration statements and other forms. These forms usually include subsidiary information.

A parent company can either create a subsidiary company or purchase the majority shares in an existing company. If founding a new subsidiary, parent companies will need to:

The parent company’s board of directors will vote to form the subsidiary company. This should include a resolution about the agreement signed by the board chair.

 A subsidiary company can follow a corporate or LLC structure since both limit liability. Both are taxed differently, so the parent company should choose a structure that benefits its finances.

As with the creation of any new company, the parent company needs to register the subsidiary within the state or country where it intends to establish it. The parent company will be recorded as the owner of the subsidiary during the incorporation process.

Like any new business, subsidiaries need capital. A parent company can transfer assets to the subsidiary, making the parent company the owner.

 Parent companies need to organize how the subsidiary company will operate. This includes everything from appointing the board of directors to establishing a 

 to deciding how the subsidiary will make critical decisions.

 As the majority owners, a parent corporation will elect the subsidiary’s board of directors, including the 

. In many cases, certain members will sit on the board of both the parent and subsidiary companies. They can help to represent the wider group’s interests when making strategic decisions.

 As a legally separate entity, subsidiaries function as normal independent companies. They will produce their own independent financial statements. Parent companies must record all transactions between themselves and the subsidiary. Parent companies are also required to include financial statements from their subsidiary companies within a consolidated financial document. Corporate documentation is vital across the whole business life cycle, from initial incorporation until the potential 

Creating a subsidiary is just the start. Managing a subsidiary requires orchestrating complex data and documents and integrating them seamlessly with the parent company’s reporting. Tools like 

 enable AI-powered updates to subsidiary records, immediately spot gaps in subsidiary data and generate custom organizational charts that visualize subsidiary structures. Integrating AI into your subsidiary management reduces manual workloads, lowers the risk of noncompliance and gives leadership a real-time view across all subsidiaries — all of which future-proofs corporate governance.

Dive deep into subsidiary management, including an eight-step subsidiary management plan.

Master subsidiary management

Regulatory and accounting implications of forming a subsidiary

Establishing a subsidiary involves setting up a new business entity, but it also brings a host of regulatory and accounting responsibilities. Companies must navigate 

 standards, jurisdiction-specific compliance rules and tax and audit requirements that vary by region. Understanding these implications helps ensure that legal or 

 do not outweigh the benefits of a subsidiary structure.

 Parent companies are typically required to consolidate the financial results of their subsidiaries into a single set of financial statements. This ensures stakeholders have a full view of the company’s financial position and performance, but it also adds complexity to accounting and reporting processes.

 Subsidiaries must adhere to local and international regulations, depending on their location and industry. The layered compliance landscape they face requires strong governance and legal oversight. For example:

In the U.S., they may be subject to SEC and IRS filings.

In the UK, they must register and report to Companies House.

 or industry-specific compliance standards.

Each subsidiary may be subject to its own audit requirements and tax obligations based on jurisdictional rules. While 

 are conducted independently at the subsidiary level, others are rolled up into the parent company’s global audit. Tax implications can be especially complex when dealing with transfer pricing, foreign income taxes or intercompany transactions.

How AI and digital tools are transforming subsidiary management

What is a subsidiary company? Definition, examples and FAQs

This article originally appeared in our July 31 edition of the Diligent Minute Newsletter. For more insights like these, delivered straight to your inbox, subscribe

Compliance lapses have big repercussions, like fines, reputational damage, compromised legal standing and missed business opportunities, to name a few.

So, it’s logical to assume that compliance is a top board priority today, with the chief compliance officer (CCO) front and center for important discussions — right?

Not so much, as we discovered in the findings of the 

, an annual survey of more than 200 U.S. public company directors conducted in partnership with Corporate Board Member and FTI Consulting.

Regulatory compliance ranked relatively low on both the list of company priorities for 2025 and on topics directors wanted to discuss at upcoming board meetings. What we’ve heard anecdotally from CCOs themselves affirms these findings. They sometimes feel neglected by their boards.

And here’s the key takeaway: CCOs may not perceive themselves as wanted — but their perspectives and input are sorely needed right now, as the following example illustrates.

Authorities in France and Switzerland, as well as state authorities in the U.S., are amping up their enforcement of anti-bribery laws. But only 65% of the directors we surveyed reported ethics policies and employee training to mitigate bribery and corruption risk in their supply chains. Only 60% implemented regular audits and inspections in this area, and a full 22% answered “not applicable/don’t know” about their risk-mitigation activities.

How can boards and CCOs close this dangerous gap?

In a recent Corporate Director podcast, we received sage advice from a compliance expert and former CCO: Kristy Grant-Hart, now Vice President and Head of Advisory Services for Spark Compliance, a Diligent Brand.

1. Recognize the urgency of the situation

Especially when the board agenda is dominated by changes in trade, technology and the geopolitical landscape, it’s tempting to move compliance to the back burner. This is especially true in industries where regulations have remained static for years.

But boards who deprioritize compliance today — and a strong, transparent board/CCO relationship — do so at their own peril, Kristy cautioned.“ Compliance doesn’t seem important until it’s the only thing, and you’re responding to big problems.”

She pointed out the importance of “more global” compliance areas like conflict-of-interest management and investigations, which “can actually be very, very problematic if you’re not paying attention to them because of what they tell you about the culture and how your company is going.”

Culture is a “hard ask” to oversee, she noted, a mix of subjective and objective data like exit interviews, focus groups and whistleblower surveys. But it’s a rising area of regulatory scrutiny and a major driver of business profitability, so overseeing it in tandem with the CCO, along with the rest of the compliance landscape, needs to be a board priority.

“I would remind directors of their personal responsibility under many laws, as well as the reputational issues that come if they face compliance meltdowns under their watch,” she said.

While 60% of organizations conducting regular anti-bribery audits and inspections was a higher-than-anticipated statistic, Kristy noted that only 65% of organizations implementing anti-bribery training was an area in need of improvement.

“Training is pretty much ground zero,” she declared. And it’s an investment that pays ongoing dividends. As boards become more aware of external pressures, like local AI regulations and growing human trafficking regulations, and internal compliance progress, their oversight becomes more robust and adaptable over time.

Now is the time for directors to proactively invite closer collaboration and information-sharing, recognizing the invaluable role the CCO can play in illuminating trends, anticipating challenges and navigating uncertain times. And CCOs can elevate their own standing through purposeful storytelling: monitoring important data points, synthesizing them and distilling them all into a compelling, contextual narrative, based on what boards care about.

“There is a tendency in our industry to report on what you are doing, your activities,” Kristy noted. “Directors don’t want a litany of what you’ve been up to. They want to understand forward-looking risk, not just backwards-looking risk.”

Want regular access to original research in the field of GRC? Bookmark our 

 for the latest surveys, podcasts and reports.

Where is the love? Giving CCOs a much-needed voice in the boardroom 

This article originally appeared in our July 17 edition of the Diligent Minute Newsletter. For more insights like these, delivered straight to your inbox, subscribe

Imagine trying to understand an approaching storm by looking through a slice of Swiss cheese. You might catch glimpses of dark clouds or shifting light, but miss the lightning striking a nearby tree — or the sparks on the roof over your head.

You could miss the full scope of the danger unfolding right in front of you.

Do today’s governance leaders have a similarly fragmented view of business risk? Our 

A fragmented view: GCs and boards see risk through different lenses

When asked about their top concerns, over two-thirds (65%) of general counsels (GCs) focused on changes in the regulatory environment. One survey respondent specifically called out evolving frameworks for AI, data and consumer privacy, especially at the state level. Another noted the uncertainty of “whipsawing policies and enforcement priorities.”

Meanwhile, boards gave regulatory change a distant backseat to tariffs. A full 81% of directors ranked these ever-changing trade developments as their top risk, compared with less than half (41%) of GCs.

Furthermore, GCs reported a gloomier view of business risk overall. In Q2, they gave it a score of 7.4 points(out of a maximum 10), up from 6.8 in Q1. Meanwhile, directors’ ratings stayed constant at 6.8.

You could debate this question ad nauseam, or you could consider what’s at stake if the two sides don’t come together to build a complete picture.

Fortunately, many GCs are already minding the gaps:

Over half (51%) told us they’re increasing their participation in leadership meetings, as well as communicating more with senior management

Four out of ten (41%) said they are using new technologies like AI for real-time data and analysis

What can GCs take away from these responses?

Takeaway 1: Keep talking and stay on top of change

Boards want to hear their legal teams’ views on strategy, risk, and especially, the regulations that might impact the things the board cares most about, for example, AI innovation, trade policy, CEO compensation and succession, and other trending topics. In fact, a full 42% told us they want to increase the frequency of board-GC conversations.

If these aren’t recurring items on your calendar, along with regular risk reports, now is the time to schedule them.

These frequent, proactive reviews should include next steps when a situation merits action, like tabletop exercises, targeted mitigation strategies and beyond.

Fortunately, many leaders are taking heed. In our 

, 47%of respondents said they are using scenario planning to navigate the current environment.

Takeaway 3: Embrace AI’s full analytic powers

Some more good news from our survey: GCs are using AI. The less-than-ideal aspect of this is that they’re often limiting their AI use to basic activities like drafting documents and reviewing contracts.

For many GCs, concerns about data protection and regulatory compliance hold them back. Others are haunted by the possibility of hallucinations or errors.

This reticence comes at a cost. Automation enables continuous monitoring, and AI-powered advanced analytics are made for high-stakes conversations about risk, delivering data, insight and context faster and more effectively than any human. Legal teams who fail to tap these powers for tracking threats, regulatory changes and organizational health risk falling behind as strategic advisors.

As boards increasingly expect legal leaders to double as strategic advisors, ongoing education helps them meet these rising expectations — and keep pace with today’s constantly evolving threats and regulations.

Delve even deeper into the top concerns of GCs and boards — and how they’re taking action to protect their organizations and the bottom line. Download our latest 

Directors Confidence Index: Navigating Risk and Uncertainty

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