Business Case: United States Vs. Best Foods

A subsidiary is a company that is owned or controlled by another company usually referred to as the parent company. Typically, the parent company would inject funds in the subsidiary which in turn will use those funds to invest in its activities to generate returns for the benefit of the parent company. But can the parent be held responsible if activities which generate income for it have detrimental consequences?

Limited liability and distinct identity

The basic rule is that parent corporations cannot be held liable for acts of their subsidiaries. The Supreme Court of the United States emphasized this basic rule in United States vs Best Foods: “It is a general principle of corporate law deeply ingrained in our economic and legal systems that

B. Fuller should have ensured that its subsidiaries manufacturing and selling products which were used for addiction, had adopted the same values and standards H. B. Fuller itself had while operating in its home country. It would be understandable that a company modifies a product to suit a specific country’s population requirement be it for cultural or taste of any other purpose but it is certainly questionable if the modified product is the cause of death in the retail country. In order to avoid possible claims of negligence or liability, it would be advisable that the subsidiary adopted values and standards of its parent company or that of the country in which it is operating whichever were higher and more

Any type of communication is usually channeled from the top tier entity, that is, the parent company to the subsidiaries. Therefore, there must be a two-way communication, and it is imperative that the team of the subsidiary communicates any actions that necessitate consultation of the parent company. Whether a parent should be held responsible for the action of its subsidiary will depend on whether the flow of communication was clear and whether the parent had any input in what the subsidiary communicates to other