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Ramesh Sharma
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Asked: 2025-03-01T17:47:15+05:30 In:

What is the difference between a subsidiary and joint venture?

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What is the difference between a subsidiary and joint venture?
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    1. Enlightened

      What is a Subsidiary? A subsidiary company is defined under Section 2(87) of the Companies Act, 2013 as a company where another company (holding company) meets either of the following conditions: ✅ Owns more than 50% of its total share capital; or ✅ Controls the composition of its Board of DirectorsRead more

      What is a Subsidiary?

      A subsidiary company is defined under Section 2(87) of the Companies Act, 2013 as a company where another company (holding company) meets either of the following conditions:
      ✅ Owns more than 50% of its total share capital; or
      ✅ Controls the composition of its Board of Directors.

      The parent (holding) company has significant control over the subsidiary’s operations, decision-making, and financial reporting.

      What is a Joint Venture (JV)?

      A joint venture is a business partnership where two or more companies collaborate for a common goal. Although the Companies Act, 2013 does not explicitly define a JV, it is generally understood as a strategic alliance where parties:
      ✔️ Contribute capital, resources, and expertise
      ✔️ Share risks and profits
      ✔️ Make joint decisions as per the JV agreement

      A JV can be structured as a company, partnership, or contractual arrangement, depending on the agreement between the parties.

      Key Differences Between a Subsidiary and a Joint Venture

      Factor Subsidiary Joint Venture
      Legal Definition Defined under Section 2(87) of the Companies Act, 2013. Not explicitly defined under the Companies Act but recognized under business laws.
      Ownership & Control Parent company holds >50% ownership and exercises control. Ownership is shared as per the JV agreement.
      Legal Structure A separate legal entity from the holding company. Can be a company, partnership, or contractual entity.
      Financial Consolidation Financial statements must be consolidated with the parent company as per Ind AS 110. Usually accounted for using the equity method under Ind AS 28.
      Liability The subsidiary is legally separate, but the parent may be liable in certain cases. Liability is shared based on the JV agreement.
      Decision-Making The holding company has full control over operations and management. Decisions are made jointly as per the JV agreement.
      Purpose Formed for long-term expansion under the holding company. Usually created for a specific project or business collaboration.
      Dissolution Exists indefinitely unless sold, merged, or wound up. Can be terminated as per the agreement or after project completion.

      Real-Life Examples

      🚗 Subsidiary Example:
      Maruti Suzuki India Ltd. is a subsidiary of Suzuki Motor Corporation, Japan, where Suzuki holds a majority stake and controls its operations.

      🔩 Joint Venture Example:
      Tata Steel and Nippon Steel formed a JV in India to manufacture high-quality steel, sharing expertise, investment, and control.

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