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These subsidiary corporations may be for-profit subsidiaries, or in some cases even nonprofit subsidiaries. In either case, the relationship cheap custom writings discount a parent company and a subsidiary may create some unique problems for the parent company.
There are many reasons why a business enterprise may establish a subsidiary corporation. These reasons often include, for example: But, a caveat is in order here. This is an important point. The matter of subsidiary independence is oftentimes a stumbling block to the parent business enterprise which may view an independent subsidiary as an uncontrolled subsidiary.
Upon reaching a decision to organize or acquire a subsidiary corporation, the business enterprise parent controls its subsidiary by being its sole stockholder. To maintain control of a subsidiary and at the same time allow the subsidiary to operate as an independent entity under the direction of its board of directors, a parent business enterprise should: The board of directors of the subsidiary are responsible to manage the business and affairs of the subsidiary.
The board selects officers and the officers are responsible to execute the policies of the board. A parent corporation may hold its subsidiary accountable for the expectations of its board of directors. As long as the parent permits the subsidiary to act independently under the direction of its board, there is little risk to the parent of being found liable for the negligence or wrong-doing of the subsidiary.
However, if the parent exercises excessive control over the subsidiary by, e. In this way, the litigant may seek payment of an unfunded liability of one corporation from another corporation. It must be noted, however, that a litigant pursuing an alter ego theory of liability has an uphill fight.
The parent corporation, by virtue of its voting control of the subsidiary, has the power to hold the subsidiary accountable for its performance.
A wrong-headed decision here risks mismanagement of the subsidiary. Not everyone is suited for being a director of a corporation. Today, a business corporation can often present challenges which tax the ability of the most gifted board members.
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As business enterprises have grown in size and complexity, it is not uncommon to find them owning and/or controlling one or more subsidiary corporations.
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