Introduction
For bankers, understanding how different corporate entities relate to one another is more than an academic exercise—it directly impacts credit decisions, exposure limits, and regulatory compliance. Terms like subsidiary, associate company, or joint venture may sound similar, but each has a distinct legal and accounting meaning that influences how risks are consolidated and how financial support or contagion is assessed within a group. This guide explains the key differences between commonly used corporate relationship terms—Subsidiary, Sister Concern, Associate, Joint Venture, Conglomerate, and Group of Companies—with specific relevance to credit analysis, exposure aggregation, and compliance monitoring in banking.
Subsidiary Company
A subsidiary is a separate legal entity controlled by a parent or holding company, usually through ownership of more than 50% of voting rights. The parent company has the power to govern financial and operating policies, appoint directors, and set strategy.
If the parent holds 100% of the shares, the subsidiary is known as a wholly owned subsidiary.
For accounting purposes, subsidiaries’ financials are fully consolidated with the parent, though legal liabilities remain distinct at the subsidiary level.
Sister Concern (Sister Company / Affiliate)
Sister concerns are separate entities that share the same parent or common owners. They operate independently and do not control one another, though they are linked through common ownership.
While they are legally distinct, bankers should be alert to contagion risks arising from reputational linkage, shared management, or cross guarantees. Exposure may still need aggregation where practical support or implicit backing from the parent exists.
Associate Company
An associate company represents a situation where one company exerts significant influence but not full control over another—typically owning between 20% and less than 50% of voting power.
The investor can participate in key policy decisions but cannot unilaterally control them.
Financials are not fully consolidated; instead, they are reflected through the equity method of accounting.
From a banker’s perspective, board representation, veto rights, or shared promoters often signal influence—and hence related-party exposure.
Joint Venture (JV)
A joint venture is a contractual arrangement where two or more parties undertake an economic activity with joint control and shared rights to net assets.
Each partner contributes capital and participates in decision-making as per the JV agreement.
For lenders, JV documents must be reviewed carefully to identify capital call obligations, change-of-control clauses, and veto rights, as these affect creditworthiness and exposure management.
Conglomerate
A conglomerate refers to a diversified group of businesses under common ownership, often operating across unrelated industries such as manufacturing, finance, and services.
Though the term is sometimes used loosely, in banking it signals complex intra-group structures, opaque cash flows, and potential cross-sector contagion risks.
Analysts often perform a “look-through” analysis to understand real exposure and inter-company dependencies.
Group of Companies
A group of companies generally refers to the parent company and all its subsidiaries, viewed as a single consolidated entity for reporting and regulatory purposes.
While sometimes used interchangeably with “conglomerate,” the term “group” emphasizes consolidation and control rather than diversification.
In banking, exposure limits, financial covenants, and related-party analyses are typically assessed on a group basis, consistent with consolidated financial statements.
Core Distinctions at a Glance
| Concept | Ownership / Control | Legal Entity Status | Financial Reporting | Bank Risk Lens |
| Subsidiary | Parent controls (>50% voting); 100% = wholly owned | Separate company | Full consolidation with parent | Assess parental support, guarantees, ring-fencing |
| Sister Concern | Common parent; no mutual control | Separate companies | Standalone; consolidated only at parent level | Watch for contagion via shared parent or cross guarantees |
| Associate | Significant influence without control (20%–<50%) | Separate company | Equity method accounting | Evaluate influence and related-party exposure |
| Joint Venture | Contractual joint control; shared rights to assets | Often separate JV entity | Equity or proportionate accounting | Examine JV agreements for obligations and veto rights |
| Conglomerate | Common ownership across unrelated sectors | Multiple entities | Depends on control relationships | Look-through for complexity and cross-sector contagion |
| Group of Companies | Parent + subsidiaries as a consolidated whole | Multiple entities | Consolidated financials | Exposure, limits, and covenants analyzed on group basis |
Banking Use Cases and Checkpoints
• Consolidation tests: Identify control (>50% voting, board control) vs significant influence to decide whether to analyze consolidated or equity-accounted numbers in rating and covenant models.
• Connected lending: Map ultimate ownership and common promoters to detect related parties and comply with exposure limits.
• Support assessment: Evaluate both explicit and implicit support—such as guarantees, letters of comfort, or cross-default clauses.
• Covenant design: Calibrate leverage and coverage covenants at both standalone and group levels; restrict inter-company loans, cash upstreaming, and pledge of shares.
Illustrative Examples
• A tech parent owning 80% of a payments firm → Subsidiary (full consolidation).
• Two NBFCs owned by the same holding company → Sister concerns (independent, but reputationally linked).
• A manufacturer holding 30% in a component maker with board seat → Associate (equity method, significant influence).
• Two automakers forming a 50:50 EV platform → Joint Venture (shared control, joint rights).
Key Control and Influence Indicators
Control Indicators: Majority voting power, right to appoint key directors, decision rights over policies, or de facto control through dispersed ownership.
Significant Influence Indicators: Board representation, participation in policy decisions, material transactions, managerial overlap, or essential technical support.
Final Takeaway
For banking professionals, precision in terminology prevents misclassification and underestimation of risk. Use: Subsidiary for control, Sister Concern for common ownership without control, Associate for significant influence, Joint Venture for joint control, Conglomerate for diversified multi-industry ownership, and Group for the consolidated parent-subsidiary perimeter. Align credit appraisal, exposure limits, and compliance checks accordingly—because in banking, the right classification is often the difference between prudent lending and hidden exposure.
