When seeking capital in your company, whether looking for a portfolio company, venture capitalist, or angel investor, it is important to understand the types of ownership and relationships between companies. What we will address in this article is the difference between equity stakeholders, subsidiaries, and wholly-owned subsidiaries. Understanding this difference, and the lingo used can help you better understand what these types of organizations goals are, how they work with companies they invest in or develop, and how that positions you as a partner or owner of equity in one of these organizations.
Typically, a regular subsidiary company is one that is owned by another organization in the amount of 51% to 99%, and as a result the parent company effectively has control over that company. In a wholly-owned subsidiary the parent company owns 100% of the company, and has complete control over the organization. Finally, in the even of 50% or less ownership the owning company is not usually referred to as a parent company, but instead an equity stakeholder in the company. Here is a simple chart to describe the difference:
| Percentage | Company | Owner | Other Details |
| 1-50% | N/A | Equity Stakeholder | Typically another company or individual is responsible for management in this type of organization. |
| 51-99% | Subsidiary | Parent Company | In this structure, the parent company usually has management and/or voting control of the subsidiary, unless other agreements exist. |
| 100% | Wholly-Owned Subsidiary | Parent Company | In this structure, the parent company has complete control of the management and voting of the subsidiary. This type of entity was usually formed or purchased by the parent company outright. |
Usually, in these situations the parent company or equity stakeholder, if it is a company, is a larger company that has control over more than one subsidiary. Some parent companies may be very active in the management of their subsidiaries, and others may not, depending on the degree of ownership.
In the case of regular subsidiary companies it may depend highly on how the parent company acquired their ownership. If they founded the company, or purchased the company with the intention of gaining control they will likely be very active in managing the company. If however they acquired controlling interest of the company from a founder or a set of key stakeholders they may leave the management up to those individuals.
With wholly-owned subsidiaries you usually see the parent company taking active control over the management of the subsidiary organization. Although this company may still employee the founders or key stakeholders, those individuals no longer own equity in the organization and the parent company will either be seeking to ensure those individuals are possible to replace if necessary, or may have already replaced them with individuals they feel are better suited for managing and growing this organization.
In the event of an equity stakeholder scenario, the equity stakeholder is often not involved in management at all, unless they are provided the equity by the organization as a reward for sitting on the board or participating in management as a C-Level executive. In this case, the equity stakeholder does not own enough of the company to make any corporate-level changes to the company without the alignment of other equity stakeholders.
Kennedy Family Ventures Limited works with companies in each of these categories. There are advantages to owners and Kennedy Family Ventures for each of these types of ownership distribution. If you would like to learn more, please contact us and we can discuss your organization.
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