An operating subsidiary is a

subsidiary A subsidiary, subsidiary company or daughter company is a company owned or controlled by another company, which is called the parent company or holding company. Two or more subsidiaries that either belong to the same parent company or having a s ...

of a

corporation A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal context) and r ...

through which the

parent company A holding company is a company whose primary business is holding a controlling interest in the securities of other companies. A holding company usually does not produce goods or services itself. Its purpose is to own shares of other companies ...

(which may or may not be a

holding company A holding company is a company whose primary business is holding a controlling interest in the securities of other companies. A holding company usually does not produce goods or services itself. Its purpose is to own shares of other companies ...

) indirectly conducts some portion of its business. Usually, an operating subsidiary can be distinguished in that even if its board of directors and officers overlap with those of other entities in the same

corporate group A corporate group or group of companies is a collection of parent and subsidiary corporations that function as a single economic entity through a common source of control. These types of groups are often managed by an account manager. The concep ...

, it has at least some officers and employees who conduct business operations primarily on behalf of the subsidiary alone (that is, they work directly for the subsidiary). The term carries slightly different meanings depending upon the specific context and industry. A non-operating subsidiary, in contrast, is a subsidiary that exists on paper, but does not have any assets or employees of its own and therefore cannot function independently as a going business concern. Thus, its only actual business "operations" may consist of its officers entering into contracts with other corporate entities (which may or may not be within the same corporate group) to borrow their assets or employees.

Examples

Multinational corporation A multinational company (MNC), also referred to as a multinational enterprise (MNE), a transnational enterprise (TNE), a transnational corporation (TNC), an international corporation or a stateless corporation with subtle but contrasting senses, i ...

s often conduct business in many countries (including their own home country) through operating subsidiaries established for particular countries. As long as all legal formalities are strictly observed (to preclude

piercing the corporate veil Piercing the corporate veil or lifting the corporate veil is a legal decision to treat the rights or duties of a corporation as the rights or liabilities of its shareholders. Usually a corporation is treated as a separate legal person, which is so ...

), this will limit the parent's exposure to a local legal system (liability, tax, etc.), since from a domestic perspective, the parent is merely a majority shareholder of a local corporation's stock. In the U.S. banking industry, the term refers to a subsidiary of a bank through which the bank chooses to indirectly conduct some part of its banking business (or related businesses like insurance). To prevent banks from concealing their true structure or strength from regulators, they are required to give public notice of certain transactions with certain operating subsidiaries. In the U.S. railroad industry, the term refers to a company that is a subsidiary but operates with its own identity and

rolling stock The term rolling stock in the rail transport industry refers to railway vehicles, including both powered and unpowered vehicles: for example, locomotives, freight and passenger cars (or coaches), and non-revenue cars. Passenger vehicles can b ...

. In contrast, a non-operating subsidiary would exist on paper only, but for operating purposes would use the identity and rolling stock of the parent company.

References

{{DEFAULTSORT:Operating Subsidiary Types of business entity