Many individuals incorrectly use the phrases “subsidiary” and “sister firm” interchangeably, when these two phrases have fully separate meanings. Merely put, a subsidiary refers to a company {that a} mum or dad firm both totally owns or holds a controlling curiosity in. Conversely, sister firms consult with subsidiaries which might be associated solely by advantage of the truth that they’re owned by the identical mum or dad firm.
Key Takeaways
- The distinction between a subsidiary and a sister firm lies of their relationship to the mum or dad firm and to one another.
- By definition, mum or dad firms personal a number of separate firms, referred to as subsidiaries.
- Sister firms are subsidiaries which might be associated as a result of they’re owned by the identical mum or dad firm.
Subsidiary
A subsidiary might both be a preexisting company {that a} mum or dad firm acquires, or it might be an entity {that a} mum or dad firm creates anew, so as to broaden its client base. Typically known as daughter firms, subsidiaries operate as impartial authorized entities, reasonably than as divisions of a mum or dad firm. Curiously, it’s theoretically potential for a subsidiary firm to manage its personal subsidiary or units of subsidiary firms.
Mum or dad firms might file a consolidated tax return, which may radically simplify the company tax calculations for each the mum or dad firm and its subsidiaries. Moreover, mum or dad 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 might be associated to at least one one other by advantage of the truth that they share a standard mum or dad entity. Every sister firm operates independently from the others, and most often, 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 mum or dad firm usually imposes separate branding methods in a concerted effort to differentiate sister firms. This helps every sister attain distinct markets, thus boosting their particular person possibilities for fulfillment.
There are exceptions to this rule, nevertheless, when sister firms be part of forces. This may occasionally entail consolidating advertising and marketing desks or providing one different particular pricing on their respective inventories. For instance, a material producer may fit with a furnishings retailer to collectively produce and market a line of upholstered items.
Sister firms with frequent goal markets might scale back prices by sharing the identical distributors and suppliers so as to snag cheaper charges.
Blurring the Strains
As an organization grows right into a conglomerate, the divisions between its subsidiaries and its sister firms might 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-about sister firms. By proudly owning these channels, promoting packages could be bought extra cheaply and effectively.
Hole shops are well-known to shoppers, however Hole Inc. is definitely the mum or dad 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.