There are many types of business entities formed for different purposes and subsidiary and joint venture are just two of them. Of late, joint ventures have become very popular all over the world. These are companies having two or more partners that is developed through joint efforts of the participating companies. These companies are established for a common objective for a finite time and equity is raised by participating companies and division of shares is in the proportion of capital invested. Sharing of revenues and assets is a chief characteristic of a joint venture. On the other hand, a subsidiary is a company in which majority stake is controlled by another company that is called the holding company.
A subsidiary company is a type of business entity that has a parent company controlling its operations by virtue of having more than 50% equity share. In some cases where there is a wider distribution of shares, a company holding less than 50% may become a holding company in the subsidiary company. There are examples of huge holding companies that are created solely to have control of many other companies. It is not necessary for the parent and subsidiary companies to be doing the same business or even that the parent company be larger than the subsidiary. Sometimes small companies are able to have majority stake in huge companies becoming holding companies of larger companies.
It is possible for a subsidiary to have its own subsidiaries and then the parent and all the subsidiaries are together known as a group. For all practical purposes (taxation and legalities), subsidiary is considered to be a separate entity but in reality, the holding and the subsidiary companies are one and the same (at least financially).
Joint ventures can be for a specific project, or they can be on the basis of a long mutual relationship. Sometimes foreign companies chip in with technology and share the revenues. Joint ventures are easily recognizable with the name of the JV containing the names of both the companies such as Sony Ericsson, Hero Honda, TATA Sky, and so on. Joint venture is formed when two companies come together for a common objective and make investments to raise the capital.
|
In brief: Subsidiary vs Joint Venture • If a company wants to control operations of another company, it can either acquire majority of equity in that company to make it a subsidiary or it can form a joint venture with the company. In a joint venture there is sharing of assets and revenues whereas in case of subsidiary, all benefits accrue to the holding company. • Subsidiary is a separate business entity from the holding company and the relationship is that of a parent and child whereas in a joint venture, the relationship is that of equal or junior and senior partners.
|