Subsidiary vs. Joint Venture

Difference Between Subsidiary and Joint Venture

Joint ventures and subsidiaries are two among many business entities formed for different purposes and the subsidiary and joint venture are just two of them. Lately, the popularity of joint ventures is on the large. These are companies with at least two partners which are developed by the collective efforts of companies participating. The establishment of these companies was made for a common goal for a finite time, and equity is raised by the companies involved and the division of shares is in the proportion of capital invested. The sharing of income and capital is a main characteristic of a joint venture while a subsidiary company is the one in which the control on majority stake is exercised by another company known as the holding company.

A branch is a type of business entity where a parent company controls the operations because of having more than 50 percent stake in the company. There are some cases where the distribution of shares is wider; a company having less than 50% can become a holding company in the branch. There are examples of large holding companies that are created solely for the control of many other companies. It is not necessary for the parent and branch offices to be in the same business or the parent to be larger than the subsidiary. Of small companies are sometimes able to have the majority stake in big companies turning into holding companies of bigger companies.

It is possible for a subsidiary to have its own subsidiaries and then the parent and all subsidiaries are together known as a group. For all practical purposes (taxation and legalities), we consider that the subsidiary is a separate entity, but in reality, subsidiary and holding company are same (at least financially).

Joint ventures can be for a specific project, or may be based on a long mutual relationship. Foreign companies are sometimes involved in terms of technology and share the revenue. The joint venture is formed when two companies come together for a common goal and make investments to raise the capital.

 

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