What is description of Related Entities?

Answer: Two businesses that have common ownership are called related entities. Common ownership means that some or all of the stockholders of one corporation own shares of stock in another corporation. Related entities such as this may conduct business with one another, may extend credit to one another, and may make loans to each other. However, from the point of view of a general unsecured trade creditor, the fact that two corporations are related entities does not have any bearing on the credit decision making process. As a general rule, related companies are not responsible for each other’s debts and creditors cannot seek to commingle the assets in order have the debt owed to them paid.

A parent corporation and its subsidiary is one type of related entity. In the United States, many companies conduct business operations in a corporate group structure consisting of a parent company [sometimes referred to as a holding company] and one or more partially or wholly owned subsidiaries. The important point to remember in the context of risk management is that the parent company is not responsible for the debts of its subsidiaries and vice-versa. Source: "Credit and Collection Handbook" published by Prentice Hall Publishing Company.