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.
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- Glossary: Struck-Off CompanyPut simply a struck off company is a closed company which is no longer listed on the active register of companies held by Companies House.
- Glossary: Exemptions for Medium-Sized CompaniesMedium sized companies may be able to claim certain exemptions when they file their accounts. Such as the disclosure of some key performance indicators.
- Glossary: AuditorsAn auditor is a person who makes an independent report to a company members as to whether the company has prepared its financial statements in accordance with regulations.
- Glossary: Exemptions for Subsidiary CompaniesA subsidiary may claim exemption from audit if its parent is established under the law of an EEA state, in certain circumstances.
- Glossary: Company Size DefinitionsCompany size definitions and exclusions are used by Companies House to determine what information a company needs to file (e.g. abbreviated or full accounts)