Subsidiary vs. Sister Company: An Overview

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

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.

Sister companies are subsidiaries that are related by virtue of being owned by the same parent company. Each sister company operates independently from the others. In some cases, the only relationship between sister companies is their common ownership by a parent company.

Subsidiary

Subsidiaries may be obtained through acquisition by the parent company. In other cases, a company creates one or more subsidiaries 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 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.

Sister Company

Sister companies are subsidiaries that are related by virtue of being owned by the same parent company. Each sister company operates independently from the others. In some cases, the only relationship between sister companies is their common ownership by a parent company.

Sister companies may produce a range of products that are quite different from each other, and even from those of their parent. In other cases, they are direct competitors or were both taken over by the same parent company. After they become sisters, the parent company usually imposes new branding strategies that distinguish them from each other in order to reach distinct markets.

However, there are sometimes arrangements between sister companies to share marketing or other resources, or they might offer each other special pricing. An example might be a fabric manufacturer that works with a furniture retailer to produce and market a line of upholstered goods.

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.

Subsidiary vs. Sister Company: Examples

There are many examples of subsidiary and sister company relationships. However, the lines between the two admittedly get blurry as a company grows into a conglomerate.

For example, Viacom Inc. has morphed over time into a multinational mass media conglomerate. Viacom owns Viacom Media Networks, which includes cable channels Nickelodeon, BET, Spike, and Comedy Central. Viacom Media Networks is a subsidiary, while those cable channels would be sister companies. Its ownership of many channels allows it to package advertising more effectively.

Gap stores are well-known to consumers, but Gap Inc. is actually the parent company that owns Old Navy, Athleta, Banana Republic, and Intermix, among other familiar store chains. The sister companies each occupy different niches. Old Navy, for example, was launched as a moderate-priced chain, while Intermix targets a younger crowd.

Key Takeaways

  • The difference between a subsidiary and a sister company lies in their relationship to the parent company and to each other.
  • A parent company, by definition, owns one or more separate corporations, known as subsidiaries.
  • Sister companies are subsidiaries that are related by virtue of being owned by the same parent company.