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A company controlled by another company, called its parent; the relationship depends on control rather than only a label or a trading partnership.
Save conceptA subsidiary is a company controlled by a parent company. The subsidiary remains a distinct legal company even when it is part of a wider corporate group. The control relationship explains why its operations can be included in accounts. An ordinary supplier, business partner or small investment is not automatically a subsidiary.
Accounting standards assess whether an investor controls another entity. Control involves power over the relevant activities, exposure to variable returns and the ability to use that power to affect those returns. Share ownership can confer control, but the analysis also considers rights and arrangements. When consolidation is required, the parent presents the controlled operations within the group account.
Imagine a hypothetical company controls the decisions and returns of a separate online-retailing company. The online company is its subsidiary under the relevant control test. It keeps its own legal accounts, while the group account combines the controlled businesses with the required adjustments. The example does not assume that any small stake or exclusive supply arrangement necessarily creates the same relationship.
A subsidiary differs from a branch operating within the same legal company and from an investment where control is absent. It need not be completely owned by the parent. The parent’s standalone account and the group account therefore answer different questions. A difference between their headline profits does not by itself identify the exact earnings of one subsidiary without further information.
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