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Liability of a Parent Company for a Subsidiary

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Here at Birkett Long, we know when going down the business road, issues may arise where the company has to take the (often financial) responsibility, but who is ultimately liable?  The parent company or the subsidiary?

A fundamental principle of English Law is that a company has its own legal personality. This also applies to parent and subsidiary companies i.e. each company is ‘separate and distinct from one another’. 

Who is ultimately liable - the parent company or the subsidiary?

In a limited company, a shareholder’s liability is limited to the shares they hold, but they are not liable for the debts of the company.

Therefore, the ownership of shares is no reason for a parent company to be liable for a subsidiary company. Likewise, subsidiary companies are not accountable for the liabilities of the parent company, however, fraud and superior knowledge about certain activities may override the usual corporate veil (click here to see our article 'When is a subsidiary not a legal entity?').

We know that not all matters are straightforward enough to easily distinguish liability and there have been exceptions. To evaluate your company’s liability, talk to our corporate experts today on 01206 217300.