Regarding subsidiaries - For a little light readin
Post# of 1873
Posted On: 06/14/2016 10:30:01 AM
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Regarding subsidiaries - For a little light reading.....
Both the parent and subsidiary are separate entities and independent of one another. In some cases, the parent is the sole shareholder of the subsidiary, while in others the parent owns more than 50 percent of the voting stock. In either scenario, the parent, like any shareholder, elects the board of directors which, in turn, selects the subsidiary's management team.
Parent companies -- the shareholders -- are not traditionally held liable for the debts or actions of their subsidiaries. However, under common law, a court may "pierce the corporate veil" of the parent if it finds an appearance of impropriety through questionable share transfers or other fraudulent means of avoiding the subsidiary's liabilities. Courts might also subordinate the parent's debts to outside creditors if the parent has engaged in unfair conduct, such as influencing new creditors to extend credit to the subsidiary while knowing the subsidiary's poor financial condition.
The parent corporation organizes the subsidiary's management structure and company bylaws, setting forth rules related to corporate governance. The level of control the parent exerts over the subsidiary determines how independent both companies are when viewed by outsiders. If the parent commingles funds with the subsidiary, shares insurance contracts and employee benefit plans, markets both companies as a single entity, files consolidated income tax returns or acts as a creditor to the subsidiary, both companies will be viewed as a single entity. Such activities may cause liability issues for the parent, and a stakeholder (creditor or other party affected by the companies' business activities) can sue the parent for using the subsidiary to advance its own interests.
Both the parent and subsidiary are separate entities and independent of one another. In some cases, the parent is the sole shareholder of the subsidiary, while in others the parent owns more than 50 percent of the voting stock. In either scenario, the parent, like any shareholder, elects the board of directors which, in turn, selects the subsidiary's management team.
Parent companies -- the shareholders -- are not traditionally held liable for the debts or actions of their subsidiaries. However, under common law, a court may "pierce the corporate veil" of the parent if it finds an appearance of impropriety through questionable share transfers or other fraudulent means of avoiding the subsidiary's liabilities. Courts might also subordinate the parent's debts to outside creditors if the parent has engaged in unfair conduct, such as influencing new creditors to extend credit to the subsidiary while knowing the subsidiary's poor financial condition.
The parent corporation organizes the subsidiary's management structure and company bylaws, setting forth rules related to corporate governance. The level of control the parent exerts over the subsidiary determines how independent both companies are when viewed by outsiders. If the parent commingles funds with the subsidiary, shares insurance contracts and employee benefit plans, markets both companies as a single entity, files consolidated income tax returns or acts as a creditor to the subsidiary, both companies will be viewed as a single entity. Such activities may cause liability issues for the parent, and a stakeholder (creditor or other party affected by the companies' business activities) can sue the parent for using the subsidiary to advance its own interests.
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