Many individuals incorrectly use the phrases “subsidiary” and “sister firm” interchangeably, when these two phrases have solely separate meanings. Merely put, a subsidiary refers to a company {that a} father or mother firm both totally owns or holds a controlling curiosity in. Conversely, sister firms discuss with subsidiaries which are associated solely by advantage of the truth that they’re owned by the identical father or mother firm.
Key Takeaways
- The distinction between a subsidiary and a sister firm lies of their relationship to the father or mother firm and to one another.
- By definition, father or mother firms personal a number of separate firms, generally known as subsidiaries.
- Sister firms are subsidiaries which are associated as a result of they’re owned by the identical father or mother firm.
Subsidiary
A subsidiary could both be a preexisting company {that a} father or mother firm acquires, or it might be an entity {that a} father or mother firm creates anew, as a way to broaden its shopper base. Typically known as daughter firms, subsidiaries perform as unbiased authorized entities, reasonably than as divisions of a father or mother firm. Apparently, it’s theoretically doable for a subsidiary firm to manage its personal subsidiary or units of subsidiary firms.
Dad or mum firms could file a consolidated tax return, which may radically simplify the company tax calculations for each the father or mother firm and its subsidiaries. Moreover, father or mother firms benefit from the capability to offset positive factors and losses between subsidiaries in an effort to decrease their total taxable income.
Sister Firm
Sister firms are subsidiaries which are associated to 1 one other by advantage of the truth that they share a typical father or mother entity. Every sister firm operates independently from the others, and normally, they produce unrelated product strains.
In rarer circumstances, sister firms are direct rivals who function in the identical area. In such conditions, after turning into sisters, the father or mother firm usually imposes separate branding methods in a concerted effort to tell apart sister firms. This helps every sister attain distinct markets, thus boosting their particular person probabilities for fulfillment.
There are exceptions to this rule, nonetheless, when sister firms be a part of forces. This will entail consolidating advertising and marketing desks or providing one different particular pricing on their respective inventories. For instance, a cloth producer may fit with a furnishings retailer to collectively produce and market a line of upholstered items.
Sister firms with frequent goal markets could scale back prices by sharing the identical distributors and suppliers as a way to snag cheaper charges.
Blurring the Strains
As an organization grows right into a conglomerate, the divisions between its subsidiaries and its sister firms could develop fuzzy. For instance, whereas multimedia big Viacom Inc. counts Viacom Media Networks as a subsidiary, Viacom Media Networks’ underlying array of cable channels, together with Nickelodeon, BET, and Spike, are thought of sister firms. By proudly owning these channels, promoting packages could be bought extra cheaply and effectively.
Hole shops are well-known to customers, however Hole Inc. is definitely the father or mother firm of Previous Navy, Athleta, Banana Republic, Intermix, and several other different acquainted retail chains. In impact, every of those is a sister firm that occupies its personal market area of interest.