Conduct of business by parent: Overview, definition, and example
What is conduct of business by parent?
The "conduct of business by parent" refers to the actions, decisions, and management activities carried out by a parent company in relation to its subsidiaries or other business operations. A parent company typically has control over its subsidiaries and is responsible for overseeing the strategic direction, governance, and operations of the entire group of companies. The conduct of business by the parent includes setting company policies, making key decisions, and ensuring that the parent and its subsidiaries comply with relevant laws and regulations.
This includes managing resources, overseeing financial matters, ensuring corporate governance standards are met, and making decisions about investments or acquisitions that impact the overall corporate structure.
Why is conduct of business by parent important?
The conduct of business by the parent is important because it establishes the guidelines and framework for how the parent company and its subsidiaries operate. By overseeing operations and ensuring alignment with corporate goals, the parent helps maximize the overall success of the group.
For subsidiaries, the parent company’s conduct of business ensures that they operate within the same strategic vision and governance framework, promoting consistency across the organization. It also helps mitigate risks by ensuring that proper governance, compliance, and financial practices are followed at all levels of the organization.
For investors and stakeholders, understanding the conduct of business by the parent is crucial to gauge the strategic direction of the company, its decision-making processes, and the potential risks and rewards of investing in the group.
Understanding conduct of business by parent through an example
Imagine a large multinational corporation, Company A, that owns several smaller companies across different industries. Company A is the parent company, and its subsidiaries operate in different sectors, such as retail, technology, and manufacturing.
- Decision Making: Company A makes key strategic decisions, such as which new markets to enter or which acquisitions to pursue, and ensures that these decisions align with the overall goals of the corporate group.
- Policy Setting: Company A sets overarching policies related to finance, risk management, and employee conduct that apply to all subsidiaries. For example, it may set standards for ethical conduct, data security, and corporate social responsibility that must be followed by all subsidiaries.
- Operational Oversight: While each subsidiary may have its own management team, Company A oversees the performance of each subsidiary and ensures that they are meeting corporate objectives, reporting standards, and legal requirements.
In this case, Company A’s conduct of business ensures that the subsidiaries operate efficiently while staying aligned with the parent’s broader strategic goals.
Example of conduct of business by parent clause
Here’s how a clause regarding the conduct of business by the parent might appear in an agreement between the parent company and its subsidiaries:
“The Parent Company agrees to conduct its business and the business of its subsidiaries in a manner that aligns with the overall strategic objectives of the group. The Parent Company shall maintain oversight of all major decisions, including but not limited to financial management, acquisitions, and compliance with applicable laws and regulations. The Parent Company may, at its discretion, provide guidelines and directives to its subsidiaries to ensure alignment with group policies and goals.”
Conclusion
The conduct of business by the parent plays a central role in ensuring that a corporate group operates cohesively, efficiently, and in alignment with its long-term strategic goals. The parent company’s oversight helps maintain consistent governance, decision-making, and compliance across its subsidiaries, minimizing risks and maximizing value for stakeholders.
For business owners, understanding the conduct of business by the parent is critical when managing or investing in a group of companies. It helps ensure that all subsidiaries are working together toward common objectives, following appropriate governance practices, and adhering to the company’s broader vision and values.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.