Parent Company

What is a Parent Company?

A parent company is the one that owns more than half of a firm’s outstanding voting shares. As a result, it has power over other companies and can exert direct influence over their operations or take a more hands-off ownership approach.

A parent firm often manages its ventures and purchases to help its other subsidiaries’ overall operations.

How is a parent company formed?

·  A large corporation acquires a smaller corporation

A parent company is formed when a large company acquires enough shares of a smaller company (more than 50%) to get the majority of voting rights.

·  A company opts to consolidate

Consolidation can result in a spin-off or a separate company formed from a larger one. A larger corporation may spin off one or more of its older or underperforming business units to focus on more profitable subsidiaries.

·  A company spins off to add value

A spin-off can also occur when a subsidiary’s business operations diverge from the parent company’s, allowing the subsidiary to generate value for the parent company through a new and distinct revenue stream.

Benefits of a parent company

For various reasons, including tax benefits and business demands, larger companies can choose to become parent corporations. Becoming a parent company and owning several other businesses would assist the company gain more clients and increase the possibilities of expanding their product offering, which would result in additional leads.

It can help increase the parent company’s overall revenues and result in tax efficiencies while ring-fencing the individual businesses.