What Is The Difference Between Sister Company and A Subsidiary?

An individual parent company could hold a number of subsidiary or sister companies so as to facilitate growth of different divisions or a businesses.

Sometimes when there is a need to expand and diversify and many companies would prefer using a subsidiary or a sister company for the purpose.

Parent company could be considered in the same way as a tree with various branches. Some of the bigger corporates can have subsidiaries and sister companies that can easily be even in excess of 100.

Now, let's take a simple example of Mahindra and Mahindra. The flagship company is called Mahindra and Mahindra Ltd, which is largely into Tractors, Automobiles etc.

It has as many as 110 subsidiaries. Among these subsidiaries include companies like Mahindra Aerospace, a venture into the Aerospace Industry. It has got many other subsidiaries like Mahindra Forgings, which is into components and other subsidiaries like Mahindra and Mahindra Financial Services etc., which is into financial services.

The objective of setting up subsidiaries is largely to engage into expansion or diversification of the business.

It maybe noted that a subsidiary is an independent legal entity that is duly registered. The overall guidance may come from the parent company or maybe independent of the same. What is certain though is that in terms of shareholding the parent company would have majority control or mostly 100 per cent holding in its subsidiary.

Sister companies on the other hand are not very different. They are largely owned by the parent company. Most of the sister companies are engaged in a different line of business, though very rarely they might compete with each other.

Both sister company and subsidiaries are not too different from each other and are often used as a substitute. But, a sister company could often be smaller and could also be a much smaller division of the larger parent company.