Understanding Unconsolidated Subsidiary: Key Legal Insights
Definition & Meaning
An unconsolidated subsidiary is a company that is partially owned by a parent company but does not have its financial statements included in the parent company's consolidated financial statements. This situation typically arises when the parent company does not have actual control over the subsidiary, even if it owns more than fifty percent of the voting stock. Factors that may lead to this classification include temporary control or significant differences in operations between the parent and subsidiary.
Legal Use & context
The term "unconsolidated subsidiary" is primarily used in accounting and financial reporting. It is relevant in various legal contexts, particularly in corporate law and financial regulations. Companies must determine whether to consolidate their subsidiaries based on control and ownership criteria. Users can manage their financial reporting obligations using legal templates and forms provided by services like US Legal Forms.
Real-world examples
Here are a couple of examples of abatement:
Example 1: A parent company owns 70 percent of a subsidiary that operates in a completely different industry, leading to the decision to not consolidate its financial statements.
Example 2: A parent company temporarily acquires a subsidiary but does not exert control due to ongoing negotiations, resulting in the subsidiary being classified as unconsolidated. (hypothetical example)