What is an umbrella company?

How much control umbrella companies have over subsidiaries depends on the amount of managerial control that is given to smaller companies' executives and managers. However, umbrella companies will always have some level of control over their subsidiaries.

Here are some well-known umbrella companies:

• General Electric (GE)

• The Gap

• ATT

Umbrella 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. GE owns a number of subsidiaries.

Umbrella companies are typically organized in one of two ways:

• Horizontal

• Vertical

Umbrella companies and their subsidiaries can also be organized in different ways. They can be horizontally integrated, an example of this being 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 subsidiaries at different levels of the production and supply chain.

For example, ATT acquired Time Warner, and this meant that Time Warner became the subsidiary of ATT, and 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 company becomes a subsidiary are through acquisitions when parent companies or corporations buy off other smaller companies, or through spin offs. Larger companies often seek to acquire smaller entities as subsidiaries and to eliminate competition in a specific market.