In the realm of business, a parent company refers to a corporate entity that possesses or exercises control over one or more other companies, typically by owning more than 50% of their voting rights. A subsidiary, on the other hand, denotes a company that is controlled by another company, usually through ownership of over 50% of its voting rights. This ownership threshold is important as it grants the parent company the authority to determine the composition of the subsidiary’s board of directors.
A parent company or its subsidiary is considered an affiliated company, and its financial statements are consolidated and presented as a single entity in the parent company’s financial reports. A parent-subsidiary relationship arises when one entity has the ability to govern the financial and operational policies of another enterprise with the aim of deriving benefits from its activities.
Collectively, a parent company and its subsidiaries form a company group. The loan agreements’ definition of a “Subsidiary” determines the concept of a “Group,” which, in turn, determines the applicability of various provisions within the agreement to the relevant companies.
Consistency and uniformity in accounting policies, as prescribed by the International Financial Reporting Standards (IFRS) upon which the Singapore Financial Reporting Standards (SFRS) are generally based, are crucial throughout a company group. This ensures smooth consolidation processes.
When in doubt, seek legal advice or consult an experienced ACRA Filing Agent.
The editorial team at Singapore Secretary Services
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