Definition of a subsidiary

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Definition of a Subsidiary

"An entity that is controlled by another entity"

Criteria for Control

A parent (investor) only has control if it has all the following:

  1. Power to direct the relevant activities

    Eg.

    Voting rights

    Rights to appoint/remove key management

    Decision-making rights via a management contract

  2. Exposure, or rights, to the variable returns

    Eg.

    Dividends

    Interest

    Changes in value of investment

  3. The ability to use its power to affect the amount of the investor's returns

    An investor (the parent) only needs the current ability to direct the activities NOT necessarily directing them actively

If a parent controls one subsidiary, which in turn controls another. ...

The parent then controls both subsidiaries

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