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A parent or holding company is one that wholly owns another, either through being a majority shareholder or being a member on the board of directors. The parent company is defined as a bigger, more powerful company with control over other companies, corporations, and limited liability companies.
A parent company can gain control over a company by holding the majority of voting stock and by ownership of shares. The shares give members of the board (main shareholders) the opportunity to vote over issues concerning the makeup of the controlled subsidiary company.
A single company cannot entirely control any organization; it can only represent a legal fiction as a separate entity. This distinction must be made to show that individuals can act for themselves while directors, officers, and employees are responsible for acting on the behalf of the company. Additionally, parent companies can own subsidiaries of other companies and corporations.
Parent companies may choose to own rather than to acquire a company into its own faction. The distinction is that the parent company is choosing to allow the controlled company to represent itself independently while under the parent company's control. Reasons for holding rather than acquiring may have to do with location – in some instances, the parent company may be based in an entirely different country and it may be financially or legally illogical to assume the company under its operations.
Another reason may be because of the brand name. If the brand of the owned company is reputable and well known, it may financially irresponsible to adopt it under the parent company’s brand where its consumers will not immediately recognize it. By allowing the company to operate autonomously, the parent company can enjoy the control and decisions governing this company without affecting the brand.
A parent company may also purchase the majority of shares of a company completely or partially unrelated in industry. This enables the company to keep its name and continue to profit from the brand while operating in an entirely different industry.
- What is a Wholly-Owned Subsidiary? Wise Geek, 2008-09-30.