Partnership and Corporation Practice Exam

The primary function of a parent corporation is to hold controlling interests in subsidiaries. A parent corporation is typically established to manage and oversee a group of subsidiary companies, which are separate legal entities. By owning controlling shares in these subsidiaries, the parent corporation can influence or dictate their operational decisions, strategic direction, and financial practices.

This structure provides several advantages, such as risk management, where liabilities can be contained within individual subsidiaries, and operational efficiency, where resources can be allocated effectively across the corporate group. Holding controlling interests also enables the parent corporation to consolidate financial statements, simplifying the assessment of overall performance while maintaining a diversified operational scope.

The other options reflect different business activities but do not accurately capture the core purpose of a parent corporation. For example, while a parent corporation may indeed invest financially, that is not its primary role. Similarly, creating new companies or dissolving others is not intrinsic to being a parent corporation, as these activities can be undertaken by various types of corporate entities.