The difference between a subsidiary and a sister company lies in their relationship to the parent company and to each other.

The Subsidiary

A parent company by definition owns one or more separate corporations, known as subsidiaries. The parent company may own the subsidiary company outright or may hold a controlling interest in its company stock. Usually, the parent company is larger than any of its subsidiaries.

A company sometimes creates a subsidiary to segment its business more efficiently.

A subsidiary functions as a separate legal entity rather than a division of the parent company. It is sometimes referred to as a daughter company.

It is also possible for a subsidiary company to control its own set of subsidiary companies.

The advantages for the parent company include the right to file a consolidated tax return. This type of corporate tax return offers more simplified filing for both the parent company and its subsidiaries. It also has tax benefits for the parent company, including the ability to offset gains and losses between subsidiaries to lower the company's overall taxable revenue.

The Sister Company

Sister companies are subsidiaries that are related by virtue of being owned by the same parent company. Each sister company is independent of the others, and the only relationship between them may be their common ownership by the parent company.

Sister companies may produce a range of products that are quite different from each other or from those of their parent. Sister companies may even be competitors.

However, there are sometimes arrangements between sister companies to share information or resources, or they might offer each other special pricing.

When sister companies have a common target market, they can reap the benefits of reduced costs by sharing marketing and advertising materials. They may use common vendors or suppliers as well.