explain subsidiary and it's effects. with long explanation.
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Explanation:
What Is a Subsidiary?
In the corporate world, a subsidiary is a company that belongs to another company, which is usually referred to as the parent company or the holding company.
The parent holds a controlling interest in the subsidiary company, meaning it has or controls more than half of its stock. In cases where a subsidiary is 100% owned by another firm, the subsidiary is referred to as a wholly owned subsidiary. Subsidiaries become very important when discussing a reverse triangle mortgage.
Subsidiaries can contain and limit problems for a parent company. Potential losses to the parent company can be limited by using the subsidiary as a kind of liability shield against financial losses or lawsuits. Entertainment companies often set individual movies, or TV shows up as separate subsidiaries for this reason.
The subsidiary structure can also offer tax advantages: They may only be subject to taxes in their state or country, versus having to pay for all the parent's profits.
Subsidiaries can be the experimental ground for different organizational structures, manufacturing techniques, and types of products. Fashion-industry companies often have a variety of brands or labels, each set up as a subsidiary. (For related reading, see "Understanding Subsidiary vs. Sister Company")
Pros
Contained/limited losses
Tax advantages
Easier to establish and sell
Synergy with other corporate divisions, subsidiaries
Cons
Extra legal, accounting work
Greater bureaucracy
Complex financial statements
Liability for subsidiary's actions, debts
However, subsidiaries also have a few drawbacks. Aggregating and consolidating a subsidiary's financials make a parent's accounting more complicated and complex.