Parent and subsidiary company relationship with customers

parent and subsidiary company relationship with customers

An Analysis Of The Legal Framework Governing The Relations Between A Parent Company and Its Subsidiaries Question / Abstract. A parent company relates to its subsidiary the way a majority stockholder relates to the business they invested in. The parent company can fire. A subsidiary's parent company may be the sole owner or one of several owners. But, in the world of e-commerce, an affiliate relationship is a.

That being said, subsidiary companies do retain some rights. As the subsidiary company maintains some independence, it will have a variety of responsibilities: Management of the subsidiary by company directors. Decisions made by the directors should be in the subsidiary's, not the parent company's, best interest.

Subsidiary directors must follow the same regulations and corporate laws as normal corporation directors. Directors are not required to report to the board of directors of the parent company. While subsidiary company directors are allowed to manage the company as they see fit, the parent company can remove the directors in the event of unsatisfactory performance.

What Is a Parent Company Subsidiary Relationship?

Allowing directors to run the subsidiary company without constant oversight is generally a much better solution than the parent company dictating operations. Parent companies have several methods for controlling subsidiary companies without infringing on their independence. The ability to fire board members and hire new ones is a useful method for a parent company to control its subsidiaries.

parent and subsidiary company relationship with customers

This power, however, can be strengthened. For instance, a parent company can give itself additional control of the subsidiary company by writing the Articles of Incorporation with a variety of provisions: Preventing the subsidiary from amending the Articles of Incorporation without parent company approval.

Limiting the subsidiary corporate officers' authority in company bylaws. Using the bylaws to clearly outline how directors can be removed and elected. If the parent company wants, it can appoint its own directors to the board of the subsidiary company. There are, however, some disadvantages for this practice.

  • The Relationship Between a Company & Its Subsidiary

For example, this can make it difficult for the directors to make decisions, as they will be pulled between the interests of the parent company and those of the subsidiary. If you need help understanding the parent company subsidiary relationship, you can post your legal needs on UpCounsel's marketplace.

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What Is a Parent Company Subsidiary Relationship?

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parent and subsidiary company relationship with customers

Like any majority stockholder, it can vote to appoint or remove the subsidiary's board members and make major decisions about how the subsidiary operates. Still, the subsidiary is a corporation in its own right. That puts a brake on the parent corporation's influence and gives the subsidiary independence as well as responsibilities: The subsidiary's directors are responsible for managing the company.

parent and subsidiary company relationship with customers

The directors must make decisions based on the best interests of the subsidiary, not the parent. The directors are subject to the same corporate laws and regulations as any board of directors. Subsidiary directors don't report to the parent board, except in the same way they'd report to a stockholder.

However, the parent company has the authority to replace the directors if it doesn't like their management decisions. Legally this is a better option than overruling or dictating to them.

parent and subsidiary company relationship with customers

Parental Power There are ways for the parent company to keep tight control without violating the subsidiary's independence. The power to hire and fire the board is a crucial one, but it can be made stronger. With a new subsidiary, for example, the parent, as owner, can draft the articles of incorporation, including certain provisions to solidify control: The parent company can place its own directors on the subsidiary board but this has drawbacks.

It's harder to make good decisions when serving two masters. If the subsidiary gets sued, shared directors might be used to prove the subsidiary isn't really independent.