When one company owns other companies, the structure is typically called a holding company or parent company with subsidiaries under it.
What is a holding company and a subsidiary company?
A holding company is a firm that owns enough voting shares in another company to control its management and policies, while a subsidiary company is the entity controlled by the holding company.
A holding company usually owns at least 51% of the subsidiary’s voting shares. This setup lets the holding company call the shots on major decisions without getting bogged down in daily operations. Take a holding company that controls a chain of restaurants—it makes the big strategic calls but doesn’t run the individual locations. As of 2026, this arrangement remains popular across everything from tech to manufacturing.
How do subsidiary companies actually function?
Subsidiary companies operate as separate legal entities owned by a parent or holding company, maintaining their own finances, management, and reporting.
The parent company usually holds a controlling interest—often over 50%—and appoints the subsidiary’s board of directors. Each subsidiary files its own financial statements and tax returns. Alphabet Inc. owns Google LLC as a subsidiary, for example. Google runs independently but under Alphabet’s watchful eye. This separation can shield the parent company from liabilities the subsidiary might rack up.
Is a subsidiary considered an asset of the parent company?
Yes, a subsidiary is recorded as an asset on the parent company’s balance sheet.
Accounting rules like GAAP treat a subsidiary as an investment asset when ownership is significant but not fully consolidated. The value typically comes from the subsidiary’s equity or the purchase price. Imagine a parent company buys a 70% stake in a business for $50 million—that investment shows up as an asset on the parent’s books.
Can a subsidiary break away from its parent company?
A subsidiary can leave a parent company through a spin-off, sale, or other transaction approved by the parent’s board and shareholders.
This usually requires a vote by the parent’s board and majority shareholder approval. Back in 2023, eBay spun off PayPal as an independent company through a tax-free distribution to eBay shareholders. The process involves legal filings, regulatory approvals, and often a distribution of shares to existing investors.
How do holding companies actually generate revenue?
Holding companies primarily earn money through dividends, interest, capital gains from selling subsidiaries, and management fees.
Dividends are the biggest income source—when subsidiaries profit, they often pay dividends to shareholders, including the holding company. Berkshire Hathaway, for instance, pulls in hundreds of millions annually from dividends paid by its wholly owned subsidiaries like GEICO and Dairy Queen. Some holding companies also charge management fees to subsidiaries for strategic oversight.
What’s the difference between a parent company and a subsidiary?
A parent company owns and controls a subsidiary, typically by holding over 50% of its voting shares, while the subsidiary operates independently under that control.
The level of control varies: a majority-owned subsidiary (51–99%) gives the parent significant influence, while a wholly owned subsidiary (100%) gives full control. Apple Inc. is the parent company of Apple Pay, which operates as a separate subsidiary serving financial services.
Is there a limit to how many subsidiaries a company can have?
A company can have unlimited subsidiaries, but legal structures vary by jurisdiction.
In the U.S., there’s no federal cap on the number of subsidiaries a company can create. Some countries impose limits—India used to allow only two layers of subsidiaries, though that rule has changed. Amazon, for example, has over 100 subsidiaries globally, including AWS and Whole Foods, without running afoul of U.S. corporate law.
Is the parent company on the hook for a subsidiary’s debt?
A parent company is generally not liable for a subsidiary’s debts unless it provides a personal guarantee or the subsidiary is not truly independent.
Limited liability protection usually shields the parent if the subsidiary is structured as a separate corporation or LLC. Courts may, however, “pierce the corporate veil” if the subsidiary is undercapitalized or if the parent exercises excessive control. In 2021, for example, a court ruled that a parent company could be liable for a subsidiary’s debt due to commingling of funds and lack of formal separation.
Are subsidiaries considered assets?
Yes, subsidiaries are classified as long-term assets on the parent company’s balance sheet.
Under accounting rules, subsidiaries are recorded at cost or fair value, depending on ownership level. Wholly owned subsidiaries are usually consolidated into the parent’s financial statements, while partially owned ones are treated as investments. Coca-Cola, for instance, reports its bottling subsidiaries as assets on its consolidated balance sheet.
Is a holding company the same as a parent company?
A holding company is a type of parent company that exists primarily to own shares in other companies and does not conduct its own operations.
A parent company, by contrast, may run its own business while also owning subsidiaries. Berkshire Hathaway fits the holding company model—it owns GEICO (an insurance company) and Dairy Queen (a food chain) but also operates as an investment vehicle. The key difference is operational activity.
Can a subsidiary have its own CEO?
Yes, a subsidiary can—and usually does—have its own CEO and executive team.
The subsidiary CEO reports to the subsidiary’s board, which may include representatives from the parent company. Waymo, Alphabet’s autonomous vehicle unit, has its own CEO who oversees day-to-day operations while aligning with Alphabet’s long-term strategy. In smaller firms, one person might hold both roles, but that’s rare in larger organizations.
Can a subsidiary have two parent companies?
No, a single subsidiary typically cannot have two parent companies with equal control.
It can, however, have multiple owners with different levels of control—for instance, a joint venture with two equal partners. Most corporate structures prevent dual parent control to avoid governance conflicts. An exception is a dual-class share structure where one class of shares has voting control, even if another group owns more total shares.
Why do companies bother creating subsidiaries?
Companies create subsidiaries to isolate risk, protect the parent’s brand, enter new markets, optimize taxes, or operate under different regulatory frameworks.
Ford Motor Company owns Ford Credit, a financial services subsidiary that handles auto loans—this keeps the core manufacturing business insulated from credit risks. Subsidiaries also let a company launch a new brand without diluting the parent’s identity, like how Meta owns Instagram and WhatsApp as separate entities.
What’s the difference between an investment company and a holding company?
A holding company primarily owns and manages operating businesses, while an investment company focuses on buying and selling securities for returns.
Holding companies like Berkshire Hathaway own and operate businesses such as BNSF Railway and See’s Candies. Investment companies, like BlackRock or Fidelity, manage portfolios of stocks, bonds, and other assets for clients. The key difference: holding companies engage in active business management, while investment companies are passive investors.
What exactly does a CEO of a holding company do?
The CEO of a holding company oversees the management of its investment portfolio, makes strategic decisions on acquisitions or divestitures, and ensures alignment with long-term growth goals.
They work with the board to evaluate new investments, monitor existing subsidiaries, and allocate capital across the group. Warren Buffett, CEO of Berkshire Hathaway, reviews hundreds of acquisition proposals every year and decides which businesses to buy, sell, or hold. The role is less about daily operations and more about high-level stewardship and fiduciary duty.
