Difference Between Subsidiary and Joint Venture
Running a business might become extremely complex in today’s dynamic world. You need to be very proactive for devising business strategies and initiating new projects. Your business model directly affects the ways you conduct your core operations and how you expand them. There are a number of ways to diversify your business but the most appropriate choice will depend upon a number of inter-related factors. Acquiring another business and starting up a joint project with another organisation are two of the most common ways of business expansion. In business terms, these two ways are known to be acquiring a subsidiary and starting a joint venture respectively.
A subsidiary is a company which is completely or partly controlled by another company. For making a subsidiary, the buyer company needs to purchase more the half of that subsidiary company to gain control of the policy making procedures. The controlling company is called the parent company or the holding company of that subsidiary.
A joint venture is a business arrangement developed between two companies for a limited span of time. A new business entity is formed with new assets being contributed from equity of both venturing companies. Both companies share control, revenues, expenses and assets of the joint venture. Once the project is finished, the joint venture is dissolved and the proceeds are distribute among the companies as agreed before.
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Subsidiary
Subsidiary actually comes under the ownership of the parent company. The parent company possess the control over the subsidiary and can take part in the policy making. The parent company holds the risks of losing the investment it has made buy holding the stocks. Any losses incurred by the wholly owned subsidiary have to be absorbed by the parent company. However, the profit gained by the wholly owned subsidiary is also to be credited into the parent company’s account.
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Joint Venture
The two or more companies enter into a joint venture share the control and policy making decisions for running the business. The arrangement might be an equal partnership or any ratio of distribution between the companies involved. Joint ventures are far less risky, as in case of their failure, the losses are equally divided by the venturing companies, so are the profits. Starting up a joint venture gives access to a larger pool of resources and expertise to both companies, including capital and personnel. Joint ventures are ideal in the situations where a company lacks some expertise and chances of failure are a bit higher.
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