When a company embarks on a venture that's high risk, it may make sense to protect the established company from liabilities that will or could arise in the new venture. A commonly used and quite effective (and relatively inexpensive) means is to set up a subsidiary corporation and operate the new venture within it.
A subsidiary corporation is one in which another corporation, the parent corporation, owns at least a majority of the subsidiary's stock and therefore has control over it. Such a structure can be effective at protecting the parent company from liabilities that arise in or as a result of the activities of the subsidiary, but only if the subsidiary is managed in a certain manner:
Failure to adhere to these could result in creditors being able to "pierce the corporate shield" and hold the parent corporation accountable for the debts of the subsidiary.
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