What Is a Parent Company?

The parent company refers to the parent company that takes the home country as the base and controls overseas economic entities effectively through foreign direct investment. The parent company of most multinational companies is established by the capital of one country, but in a few cases it may also be established by the capital of two or more countries. As the decision-making center of the entire multinational company, the parent company is a legal person organization registered in the government agency of the home country. It is responsible for organizing and managing all the production and operation activities of the multinational company at home and abroad. ^[1]

parent company

The parent company refers to the parent company that takes the home country as the base and controls overseas economic entities effectively through foreign direct investment. The parent company of most multinational companies is established by the capital of one country, but in a few cases it may also be established by the capital of two or more countries. As the decision-making center of the entire multinational company, the parent company is a legal person organization registered in the government agency of the home country. It is responsible for organizing and managing all the production and operation activities of the multinational company at home and abroad. ^[1]

According to the theory of the parent company, the consolidated financial statements are an extension of the parent company's financial statements. The basic purpose of its preparation is to serve the interests of the shareholders of the parent company from the perspective of the parent company.

The preparation of consolidated accounting statements assumes that the enterprise group is a single accounting entity. Defining such subjects must address two issues:

(1) To whom is the subject's information provided?

(2) What is the purpose of providing this information?

Traditionally, consolidated accounting statements are primarily for existing and potential parent or holding companies (referring to statutory

A parent company is an enterprise with one or more subsidiaries. From the definition of the parent company, it can be seen that the parent company requires two conditions at the same time:

First, there must be one or more subsidiaries, that is, they must meet the control requirements specified in the consolidated statement standards, be able to determine the financial and operating policies of another enterprise, and obtain benefits from the operating activities of another enterprise. Power. The parent company can control only one subsidiary or multiple subsidiaries at the same time.

Second, the parent company can be an enterprise, such as "

Contacts and differences between head office, parent company, branch and subsidiary

I. Headquarters and branches 1. The concept headquarter manages the branch, exercises the right to direct, manage, and supervise its subsidiaries in production and operation, capital dispatch, personnel management, etc., has legal personality, and can independently assume civil liability. A branch company is a legal concept corresponding to the head office. It refers to a branch that is under the management of the head office in terms of business, capital, and personnel and does not have legal personality. Branches have no legal or economic independence and belong to subsidiaries of the head office.
2. Connections and differences (1) The branch does not have its own independent property. The actual possession and use of the branch is part of the head office's property and is included in the company's balance sheet.
(2) The branch does not have the status of a legal person and does not independently bear civil liability.
(3) The procedure for setting up a branch is different from the procedure for setting up a company in the general sense. Setting up a branch requires only simple registration and opening procedures.
(4) The branch does not have its own articles of association, and there is no company decision-making body such as the board of directors.
(5) The name of the branch company is the name of the head office followed by the word "branch company". Although the name of the company has the word "company", it is not a true company.
2. Parent Company and Subsidiaries 1. Concept Parent company refers to a company that owns a certain percentage or more of the shares of another company or can exercise actual control over another company through an agreement. It has the status of a legal person and can independently bear civil liability. A subsidiary is a legal concept corresponding to the parent company. It refers to a company that holds more than a certain percentage of its shares or is actually controlled by another company through an agreement. Subsidiaries have the status of legal persons and can independently bear civil liability.
2. Contact and Differences (1) The subsidiary is under the actual control of the parent company.
The parent company has the actual decision-making power on major matters of the subsidiary, can determine the composition of the board of directors of the subsidiary, and can directly exercise the power to appoint directors of the board of directors.
(2) The relationship between the parent company and its subsidiaries arises based on the share ownership or control agreement.
Generally speaking, shareholders with more shares have greater decision-making power over corporate affairs. Therefore, if a company owns more than 50% of the shares of another company, it can exercise actual control over that company. In practice, most companies have relatively scattered shares, so as long as they own more than a certain percentage of shares, they can gain control. In addition to controlling shares, by entering into certain special contracts or agreements, one company can also be controlled by another company.
(3) The parent company and the subsidiaries are independent legal persons.
Although the subsidiary is under the actual control of the parent company, it is subject to the control and management of the parent company in many aspects, and some are actually similar to the branches of the parent company. Engage in business activities in the name of and independently bear civil liability.
Subsidiaries have their own articles of association, and there are company decision-making bodies such as the board of directors. Subsidiaries have their own independent property, and the property they actually possess and use belongs to the subsidiary and has its own balance sheet. Each of the subsidiary and the parent company shall assume their respective responsibilities within the limits of their entire property, and shall not be associated with each other. As the largest shareholder of a subsidiary, the parent company shall only be liable for the debts of the subsidiary in its operating activities to the extent of its capital contribution to the subsidiary. To establish a subsidiary, an application must be made in strict accordance with the requirements for establishing a company, and a business license must be obtained in accordance with the law and relevant procedures must be completed before it can start business.
3. Subsidiaries and branches 1. The establishment methods are different.
Subsidiaries are established by the company's shareholders in accordance with the "Company Law" and shall meet the requirements of the "Company Law" for the establishment conditions and investment methods of the company. A branch company is a branch of a company that is established by the parent company outside its domicile and applies to the local industrial and commercial authorities for establishment.
2. Different legal status.
A subsidiary is an independent legal person with legal personality, has an independent name, articles of association and organizational structure, and engages in external business activities in its own name. A branch company does not have the status of a legal person, does not have an independent name, articles of association, and organizational structure, and engages in business activities in the name of a branch of the head office.
3. Different control methods.
The parent company generally does not control the subsidiary directly, but influences the production and operation activities of the subsidiary by appointing and removing members of the board of directors of the subsidiary and making investment decisions. The personnel, business and property of the branch are under the direct control of the head office, and they are engaged in business activities within the business scope of the head office.
4. Different ways to assume debt liabilities.
As an independent legal person, a subsidiary is liable for its debts within the limits of the entire property of the subsidiary. Since the branch company does not have its own independent property, it is accounted for financially with the head office. Therefore, the company's operating debts are settled by the head office. That is, the head office assumes responsibility for the debts of the branch in operating activities within the limits of all its assets.
5. Different business licenses are obtained.
Subsidiaries received business licenses of corporate legal persons with the names of legal representatives. The branch company receives the business license and has the words of the person in charge.
6. Product packaging is marked differently.
Subsidiaries must mark their own names and domiciles on product packaging. A branch office may indicate its own name and address, or the head office name and address, or only the head office name and address. ^[2]