What Are The Legal Definitions Of These Investment Terms?

Investment law is an important branch dedicated to those who choose to invest their financial assets in order to see them grow. Both lawyers and their clients should know the legal definitions of many terms related to investment law. These include definitions for the terms “parent company,” “subsidiary,” “sister company,” “affiliate,” and “division.” How many do you know?

A parent company is any business that owns another company or organization. Amazon is a good example of what it means to be a parent company, as it owns hundreds of other businesses in order to make itself more valuable to consumers and investors. The companies owned by the parent company are called “subsidiaries.” They are sometimes called child companies. Sometimes subsidiaries have their own child companies.

Two or more sister companies are considered subsidiaries to the same parent company. Once a larger company owns two or more smaller organizations, those organizations are considered sisters. They might operate on their own and have little if any connection other than the owner.

A subsidiary might still have significant stock ownership. An affiliate is still connected to the parent company, but with only a minority stake in the company. An affiliate might be built internationally under a different name. If the affiliate fails, few will recognize it as a failure of the parent company (even though it is one). This ensures the stock holdings remain stronger than they might if a venture under the same company name had failed. 

Many are confused by the term “division,” which is part of the parent company. It might not have the same name as the company. Take Google, for example, which is a division to the larger organization “Alphabet.” Another division of the company is the “Other Bets,” which handles some R&D projects. Other Bets has many child companies of its own, which are not divisions of the larger parent, Alphabet.