What is a parent company?

Parent companies can come in the form of conglomerates; these are business entities that are made of a number of different and sometimes seemingly unrelated businesses. A great example of this type of parent company is General Electric or GE. GE's business units are diverse and are able to benefit from cross-branding.

Parent companies and their subsidiaries can also be organized in different ways. They can be horizontally integrated. An example of horizontal integration of a parent company is Gap Inc. which owns Banana Republic and Old Navy as subsidiaries.

Parent companies may also be vertically integrated. This is the case when a parent company owns several different smaller companies at different levels of the production and supply chain.

For example, ATT acquired Time Warner, and this meant that ATT became the parent company of both the film production and TV broadcast side of Time Warner, in addition to its own telecommunications networks that gave the media its infrastructure.

The two most common ways a corporation becomes a parent company are through acquisitions, the buying of other smaller companies, or spin-offs. Larger companies often seek to acquire smaller entities and become their parent company to eliminate competition in a specific market.