Definition of a Subsidiary Company

Definition of a Subsidiary

A subsidiary is a company that is controlled by another company, known as the holding company. Under the Companies Act 2006, a company qualifies as a subsidiary if the holding company:

• Holds a majority of voting rights in the subsidiary.

• Appoints or removes a majority of directors on the subsidiary's board.

• Controls a majority of voting rights, either directly or through agreements with other members.

Additionally, if a company is a subsidiary of another company that is itself a subsidiary, it is also considered a subsidiary of the parent holding company.

Wholly-Owned Subsidiaries

A wholly-owned subsidiary is a specific type of subsidiary where all members are:

• The holding company itself.

• Other wholly-owned subsidiaries of the holding company.

• Individuals acting on behalf of the holding company or its wholly-owned subsidiaries.

This complete ownership structure simplifies control and ensures all decisions align with the parent company’s interests.

Legislative Context

This definition is governed by the Companies Act 2006, which provides the legal framework for the classification and management of subsidiaries in the UK.

Practical Implications

Understanding the definition of a subsidiary is essential for:

• Corporate Structuring: Clarifying the relationships between parent and subsidiary companies.

• Legal Compliance: Ensuring subsidiaries meet their obligations under UK law.

• Financial Reporting: Determining how subsidiaries contribute to consolidated accounts.

Recent Updates and Related Legislation

• UK Corporate Transparency and Register Reform (2023): New provisions enhance transparency around company ownership structures, impacting parent-subsidiary relationships.

• Accounting and Auditing Regulations: Subsidiaries are often required to submit financial statements as part of consolidated accounts, under both UK GAAP and international accounting standards.

Useful Links for Further Reading

• Companies Act 2006: Subsidiaries Provides the full legal definition of subsidiaries and their relationship to holding companies.

• UK Government: Corporate Transparency Reform Explains recent updates to company ownership regulations, helping businesses align with the latest requirements.

• Financial Reporting Council (FRC): Consolidated Accounts Guidance Offers insights into financial reporting obligations for groups with subsidiaries.