Subsidiary
What is a subsidiary? Is there a domsidiary? Is this a Fifty Shades thing? Well, they’re both complicated and have to do with control, but no...put those fuzzy handcuffs away.
A subsidiary is a company that has a parent company, which means it’s owned and controlled by another company.
PetTV corporation comprises 18 different divisions, each of which operate one form or another of TV for pets. There’s CatTV, which runs channels from the tame Meow channel to the more risque Scratch-n-Hiss. There’s also DogTV with Woof and Squirrel! channels, and BunnyTV with Meadow and FOX channels (this one with actual foxes). Each of these divisions is operated separately as subsidiary companies for accounting and operating efficiency reasons. At the end of the reporting period, all of the results are rolled up into one final number, as reported by the parent company PetTV. The 18 subsidiaries all comprise value inside of the parent. Parent and child companies are all around you...even if you don’t know it.
In real life, big names like Google and Amazon are actually parent companies of a bunch of subsidiaries. Amazon owns Audible and Zappos. Alphabet (which used to be “Google”) is a parent company with 26 different subsidiaries (yep, 26...good luck with your taxes this year, guys). They’ve got Calico (an R&D company that's fighting the Grim Reaper daily), CapitalG (venture capital for startups), Google (you know the one), and Loon (bringing the internet to the boonies).
Why are subsidiaries even a thing? Well, it always comes down to money, doesn’t it? Subsidiaries can be smarter for some accounting reasons, but the main benefit is to separate assets so that each subsidiary company is its own branch of risk. That way, if Calico (the anti-aging research and development subsidiary of the Big G) got in trouble down the road for having some cryogenically frozen head wake up early and sue, then Calico would be sued and take on the liability. Alphabet’s other subsidiaries, like Google, CapitalG, and Loon, would continue to function as if everything was ust fine. Sure, if that disembodied head sued Alphabet, the parent company, that would put all of the subsidiaries in potential jeopardy, which is a risk in itself. Still, it’s easier to have all the finances separate, so the parent company can see and choose what assets are paying for what liabilities.
Subsidiaries also make more sense for some industries, like in real estate. It can be easier to create a new subsidiary for a new batch of properties than incorporate them into an existing company, not to mention keeping those liabilities separate in case a new batch of properties is actually sitting on top of some slippery limestone, which could potentially cause some Pisa-esque situations.
While taxes and accounting can be more complicated with subsidiaries, there are benefits as well, like offsetting the losses of one subsidiary with the profits of another in some cases.
Parent companies are sometimes called “holding companies,” and subsidiaries are sometimes called “divisions” or “branches.” And some people call Fifty Shades of Grey a good book. So...it takes all types.