What is a Parent Company?

A parent company is a company that retains control over one or more other entities through its ownership of a majority of their voting stock. These other entities are considered to be subsidiaries of the parent company. A parent company can be designated as such either by acquiring other businesses, or by spinning off its own operations into separate legal entities that it still controls. Parent companies can exercise varying degrees of control over their subsidiaries, depending on the management philosophy of a parent company’s management team.

Parent Company Financial Statements

The general purpose financial statements of the parent company are considered to be those that include the consolidated results and financial positions of its subsidiaries. This calls for the use of consolidation accounting, which eliminates inter-company transactions among the subsidiaries. The elimination of inter-company transactions prevents sales between subsidiaries from being counted as revenue in a firm’s consolidated financial statements.