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What is a partially owned subsidiary?
Partially owned subsidiary
A partially owned subsidiary is a company where a parent company owns more than 50% but less than 100% of its shares, giving it a majority of voting power or outstanding equity interests. This ownership structure gives the parent company control while allowing other investors to maintain minority stakes.
So, what makes this different from other ownership structures? It comes down to control and ownership percentages. When a company owns less than 50% of another business, that's typically an equity investment—they have influence but not control.
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This guide explores the key aspects of partially owned subsidiaries, from understanding parent company relationships and ownership structures to navigating accounting, international operations, and strategic benefits—helping you make informed decisions about corporate growth and expansion.
What is a parent company?
A parent company is a business that owns a controlling interest (typically more than 50%) in another company. The relationship breaks down like this: when the parent owns 51-99% of the subsidiary's shares, it's a partially owned subsidiary. When the parent owns 100% of the shares, it's called a wholly owned subsidiary.
Can a parent company have multiple subsidiaries?
A holding company is generally allowed to own controlling interests in as many businesses as it wants, so long as it can afford to purchase enough shares. When a holding company owns two or more subsidiaries, the subsidiaries are known as "sister companies." A parent company may also refer to its subsidiaries as "daughter companies."
Partially owned vs. wholly owned subsidiaries
What's the difference between partially owned and wholly owned subsidiaries? It comes down to control and decision-making power:
Partially owned subsidiary:
- Parent company owns 51-99% of shares
- Minority shareholders have a voice in major decisions and may require their prior approval for actions like material acquisitions or dispositions over a certain threshold.
- More complex decision-making process
- Shared financial responsibility
Wholly owned subsidiary:
- Parent company owns 100% of shares
- Complete control over operations and strategy
- Simplified decision-making
- Full financial responsibility
Is a partially owned subsidiary its own company?
Yes, a partially owned subsidiary operates as its own distinct legal entity. Here's what that means in practice:
- Separate legal structure: Own operations, board of directors, and management team
- Independent liabilities: Separate tax requirements and legal responsibilities
- Reporting hierarchy: Reports to its own management first, then to the parent company
This separation provides some protection for the parent company while maintaining operational control.
Who does the accounting for a partially owned subsidiary?
Although a parent company may own multiple smaller companies, each partially owned subsidiary is a whole, distinct business of its own. That means that all the subsidiary's accounting, from payroll to revenue reports, can be done by the subsidiary itself.
However, some companies may conduct their internal financial reports by consolidating numbers between parent and subsidiary. The consolidation of a partially owned subsidiary is quite common; under US GAAP, this is required when a company has a controlling financial interest and involves combining all relevant financial data between parent and subsidiary when calculating the parent company's finances.
How do international subsidiaries work?
When a parent company has subsidiaries that are incorporated in another country, things can get a bit complicated. Generally, a subsidiary is required to conform to all the laws and regulations of the country where it's incorporated and where it operates. This can mean that policies have to be adapted between the parent company and subsidiary to ensure compliance in all relevant countries.
What are the benefits of partially owned subsidiaries?
Why do companies choose partially owned subsidiaries? The benefits are compelling:
- Tax advantages: Consolidate financials for better tax rates, offset gains with losses, and, as the IRS notes, allocate benefits like the $250,000 accumulated earnings credit across subsidiaries.
- Risk management: Compartmentalize liability by using subsidiaries for risky ventures
- Cultural flexibility: Maintain different company cultures suited to specific markets or business types
- Market expansion: Enter new markets cost-effectively by acquiring existing companies rather than starting from scratch
Are there any downsides to partially owned subsidiaries?
What are the potential downsides? Here are the key challenges to consider:
- Limited control: Minority shareholders can influence decisions that conflict with parent company goals, for example, by contractually ensuring their designees are elected to the Board of Directors.
- Complex decision-making: Dual chains of command can slow down important business decisions
- Increased costs: Higher legal fees, complex tax filing requirements, and additional administrative overhead
Simplifying global expansion with Oyster
Establishing a subsidiary is a common strategy for global expansion, but it comes with significant legal, financial, and administrative burdens. For companies looking to hire international talent without the complexity of setting up a new entity, there's a more straightforward path.
An Employer of Record (EOR) like Oyster allows you to hire, pay, and care for employees anywhere in the world, compliantly. We handle the local legal requirements, payroll, and benefits, so you can focus on building your global team. If you're ready to access a worldwide talent pool without the operational headaches of a subsidiary, it might be time to start hiring globally with a trusted partner.
FAQ’s
What’s a real-world example of a partially owned subsidiary?
Think of a parent company acquiring 70% of a fast-growing local firm to enter a new market, while the founder and a local investor keep the remaining 30%. The parent can direct strategy through majority voting rights, but the minority owners typically negotiate protections like approval rights over major asset sales, new share issuance (to prevent dilution), executive hires, or taking on significant debt. In practice, this structure is common when the parent wants control without buying out every shareholder on day one, or when local ownership helps with relationships, licensing, or market credibility.
How does a partially owned subsidiary show up on the parent company’s balance sheet?
If the parent has control, the subsidiary’s assets and liabilities are generally consolidated into the parent’s financial statements, even if the parent owns less than 100%. The piece the parent doesn’t own doesn’t disappear—it’s usually reflected as a “noncontrolling interest” (also called minority interest) within equity, which represents the portion of net assets and results attributable to other shareholders. This is one of those areas where Finance teams get tripped up: consolidation is about control, not just ownership percentage, and it can affect everything from debt ratios to how profit is presented.
What rights do minority shareholders typically have in a partially owned subsidiary?
Minority shareholders often negotiate “protective provisions” that give them a real voice on high-stakes decisions, even though they can’t run day-to-day operations. That usually includes board representation, veto rights on specific “reserved matters” (like changing the business scope, selling the company, issuing new shares, or approving large acquisitions), and information rights so they can review financials on a set cadence. Here’s the thing: those rights can be healthy governance, but they can also slow execution if the parent assumes “majority ownership means we can move fast” and doesn’t plan for approvals.
How do you choose between a partially owned subsidiary, a wholly owned subsidiary, and using an Employer of Record (EOR)?
It comes down to what problem you’re solving. A subsidiary structure—partial or full—can make sense if you need a lasting local presence for licensing, revenue recognition, or deeper market operations, and you’re ready for ongoing corporate maintenance and local compliance overhead. A partially owned subsidiary is often used when you want control but also want to keep local partners or founders invested. An Employer of Record (EOR) is a different tool entirely: it’s typically the fit when your immediate goal is employing talent in-country without building and maintaining an entity, especially early in market entry or when headcount is still small and you want flexibility.
How can you estimate the true cost of employing someone through a subsidiary versus an EOR?
Most teams underestimate “employment cost” by focusing on base salary and forgetting employer taxes, statutory contributions, mandatory benefits, and ongoing administration. You also need to factor in the internal cost of running payroll correctly, keeping policies updated, and handling country-specific changes—not just the legal setup fee. If you want a quick, finance-friendly estimate that includes employer costs by country, you can use Oyster’s Global Employment Cost Calculator to model what employment can look like before you decide whether to build an entity or use an EOR.
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About Oyster
Oyster is a global employment platform designed to enable visionary HR leaders to find, hire, pay, manage, develop, and take care of a thriving distributed workforce. Oyster lets growing companies give valued international team members the experience they deserve, without the usual headaches and expense.
Oyster enables hiring anywhere in the world—with reliable, compliant payroll, and great local benefits and perks.
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