Posted in Finance, Accounting and Economics Terms, Total Reads: 387
Definition: Parent Company
Parent Company, also known as holding company, owns other companies by holding significant amount of control and voting stocks in that company. The parent company is the larger firm which holds voting rights in the smaller firm which is known as subsidiary of the parent company. Parent company also controls the management and operations of the company by electing or controlling the formation of board of director of subsidiary. Parent companies usually have one or more subsidiaries under them which may be in same or different industry.
Companies become parent company usually acquire subsidiaries through mergers or acquisitions. Larger companies sometimes buy smaller companies with an aim of broadening their operations, improve their financial health, broaden their geographic spread, receive tax benefits, to obtain synergies, etc. Other ways of becoming a parent company is by spinning of a part of the company while holding the voting rights of that company.