Parent Company

A business entity that exercises control over one or more subsidiary companies

Author: Osman Ahmed
Osman Ahmed
Osman Ahmed
Investment Banking | Private Equity

Osman started his career as an investment banking analyst at Thomas Weisel Partners where he spent just over two years before moving into a growth equity investing role at Scale Venture Partners, focused on technology. He's currently a VP at KCK Group, the private equity arm of a middle eastern family office. Osman has a generalist industry focus on lower middle market growth equity and buyout transactions.

Osman holds a Bachelor of Science in Computer Science from the University of Southern California and a Master of Business Administration with concentrations in Finance, Entrepreneurship, and Economics from the University of Chicago Booth School of Business.

Reviewed By: Christopher Haynes
Christopher Haynes
Christopher Haynes
Asset Management | Investment Banking

Chris currently works as an investment associate with Ascension Ventures, a strategic healthcare venture fund that invests on behalf of thirteen of the nation's leading health systems with $88 billion in combined operating revenue. Previously, Chris served as an investment analyst with New Holland Capital, a hedge fund-of-funds asset management firm with $20 billion under management, and as an investment banking analyst in SunTrust Robinson Humphrey's Financial Sponsor Group.

Chris graduated Magna Cum Laude from the University of Florida with a Bachelor of Arts in Economics and earned a Master of Finance (MSF) from the Olin School of Business at Washington University in St. Louis.

Last Updated:October 31, 2023

What Is a Parent Company?

A parent company is a business entity that has control over other companies. These companies are also known as subsidiaries, and they can be wholly or partially owned.

These corporations are created mainly by mergers and acquisitions or spin-offs. They either acquire a smaller firm by getting enough stock voting rights (50% or more) or carry out a spin-off. A spin-off is a creation of an independent company from a larger business entity.

To become a parent company, a corporation should own 50% or more of the outstanding voting shares of another business. A wholly-owned enterprise is one where the parent company owns 100% of the subsidiary’s stock. 

Corporations aim to become parent companies to gain access to new assets and tax benefits. They also acquire smaller companies to dampen the competition in the market and bring new employees on board. This increases the firm’s resources and ideas. 

The two most common types of parent companies are conglomerates and limited liability corporations. They aim to actively manage their own ventures and take care of the overall operations within their subsidiaries.

Key Takeaways

  • A parent company is a business entity that controls other companies, known as subsidiaries, which can be wholly or partially owned.
  • Parent companies are often created through mergers, acquisitions, or spin-offs. They acquire subsidiaries by owning 50% or more of the voting shares.
  • Corporations aim to become parent companies to access new assets, gain tax benefits, reduce competition, and expand their resources and ideas.
  • The two common types of parent companies are conglomerates, which own diverse businesses, and limited liability corporations, which actively manage their ventures.
  • Parent companies and subsidiaries produce consolidated financial statements, combining the financial data of all companies in which the parent owns 50% or more of the voting stock.

How a Parent Company Works

Parent companies and their subsidiaries can be horizontally integrated. Walt Disney and Pixar animation studies or Facebook and Instagram are a few examples. This means they control their subsidiaries along their products or supply chain.

They can also be vertically integrated, like Apple. This means taking direct ownership of various stages of its own production process. For example, Apple controlled its products' manufacturing and distribution rather than relying on external suppliers.

They can either have hands-on or hands-off control over the subsidiary due to its voting rights in shareholder meetings.

Hands-on control means the new business owners now have direct influence over the other business operations. Hands-off control means the subsidiary’s manager can take over most day-to-day business operations.

The parent company, along with its subsidiaries, has to produce consolidated financial statements.

This combines the financial statements of each company together due to the company partaking in 50% of the voting stock. This provides a clearer picture of all the companies together at once.

Parent Company vS Holding Company

Parent companies and holding companies are two distinct structures that own or control subsidiaries, but they differ significantly in their approach and influence over these entities. Parent companies take an active role, engaging directly in subsidiary operations and leveraging acquisitions to enhance their performance. They can also be conglomerates, owning a diverse portfolio of seemingly unrelated businesses, enabling cross-branding and resource sharing among their subsidiaries.

On the other hand, holding companies typically maintain a more passive role, acting as a shell for stock ownership and facilitating access to assets and tax benefits, with limited interaction with subsidiary activities.

Parent Company Vs. Holding Company

Aspect Parent Companies Holding Companies
Ownership Control Direct control and active involvement in subsidiary operations. Limited interaction and typically serve as a passive shell.
Support & Influence Actively support and engage in subsidiary activities, acquisitions, and management. Mainly act as a holding entity, providing stock ownership and access to assets and tax benefits.
Business Structure Can be conglomerates, owning a diverse range of seemingly unrelated companies. Focus on subsidiaries' resources and cross-branding to benefit business units.

Did you know?

Disney is the biggest media conglomerate because of its wide use of diverse media outlets. These include cable shows, movies, music, and even publishing.

On the other hand, holding companies have little interaction with their subsidiaries. They only act as a shell. A shell is an inactive business operation. It allows them to hold the outstanding stock of their subsidiaries and gain access to new assets and tax benefits. 

They are usually set up specifically to group several subsidiaries together. They have no intention of producing goods or services. They only aim to provide control to their subsidiary companies. 

Parent Company Benefits

There are numerous benefits to organizing a corporation as a parent company. As mentioned, corporations aim to become parent companies to gain access to new assets and tax benefits.

Let’s dive into some more detail about the benefits that arise with becoming a parent company:

  1. The parent company is not liable for whatever happens to the subsidiary. Even if the subsidiary is sued and owes a lot of money or files for bankruptcy protection, the parent company isn’t affected.
  2. They can own assets and other shares in other small companies. This can practically range to anything. They can own intellectual property such as copyright, trademarks, and physical properties.
  3. They gain new and bright employees to help with their business operations.
  4. It’s easier to sell businesses if they are wholly owned rather than selling assets piece by piece.
  5. It helps investors leverage their financial strength. They can invest 50% or more of the other company’s stocks rather than 100% to take control over their business operations. This allows more room for other acquisitions.
  6. It can also help reduce taxes that must be paid on money received from subsidiaries by basing itself in a low tax rate state or country. This would help save money from taxes. 


In summary, the creation of a parent company typically results from mergers, acquisitions, or spin-offs, and it can take on various forms, depending on its integration strategy and management style. The key motivations behind becoming a parent company often include accessing new assets, gaining tax benefits, and leveraging synergies among subsidiary businesses. This approach to corporate governance continues to shape the dynamic landscape of the business world, allowing parent companies to exercise significant influence over their subsidiaries while pursuing diverse strategic objectives.

Researched & Authored by Jad Shamseddine | Linkedin

Reviewed and Edited by Aditya Salunke | LinkedIn

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