Subsidiary vs. Joint Ventures
A joint venture and a subsidiary company are both legal entities formed by organizations to reach specific business goals. The major difference between the two structures of businesses is how each business is established and who maintains control over the enterprises. Both types of business arrangement can have specific time frames or objectives, or they can co-exist indefinitely.
A business enterprise can establish smaller, separate entities called subsidiary companies. Corporations often form subsidiaries, particularly when they produce a number of different products and services. The subsidiary focuses on a specific area of the business or a specific line of products or services. Some organizations are divided into many different subsidiaries, each of which controls a certain area of the business. The subsidiaries are separate business entities from the parent company, but the parent company maintains partial or full control of its subsidiaries. The level of control that the parent company has over its subsidiaries depends on whether the parent company owns all or just part of the subsidiary companies.
A joint venture is similar to a partnership; it exists when two or more entities form a single joint enterprise. Several companies and individuals enter into a contractual agreement and contribute capital to form the business. The entities participate in a percentage of the venture's profits and losses. Each entity has an ownership interest in the joint venture and shares in management responsibilities. Joint ventures are usually formed for a specific purpose. They may be perpetual or exist for a limited period.
A single business may establish a subsidiary company that it fully or partially controls, whereas a joint venture is formed by an agreement between two or more entities for a specific business purpose. Neither company owns a joint venture wholly. The parent company of a subsidiary may own 100 percent of the company or a smaller percentage. The parent company’s ownership interest in the subsidiary may be a majority interest or a minority interest depending on the percentage of ownership.
The parent company of a subsidiary controls the decision making, such as the selection of the board of directors and managers to the extent of its ownership interest in the subsidiary. Even though the management responsibilities of joint ventures are shared between the co-owners, the joint venture may be structured to allow certain companies or individuals to have dominant control over the enterprise in relation to other joint venture participants.