A watchful eye overseeing interconnected gears, symbolizing parent company liability.

Holding Companies Accountable: When Can a Parent Firm Be Liable for Subsidiary's Actions?

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Avery Sinclair in Law & Justice June 2025 • 4 min read.

"Navigate the complexities of corporate accountability and understand when a parent company can be held responsible for the actions of its subsidiaries."


In today’s interconnected business world, multinational corporations often operate through a network of subsidiaries. While this structure offers numerous advantages, it also raises complex legal questions about accountability. When a subsidiary engages in illegal or harmful activities, can the parent company be held liable? This question is particularly relevant in the European Union, where competition law is vigorously enforced.

A recent case before the European Court of Justice, Akzo Nobel and Others v Commission, provides valuable insights into this issue. The case clarifies the circumstances under which a parent company can be held liable for the actions of its subsidiaries, even if direct action against the subsidiary is time-barred. This article delves into the details of the Akzo Nobel case, exploring its legal context, key findings, and practical implications for businesses operating in the EU.

Understanding the nuances of parent company liability is crucial for ensuring ethical business practices and mitigating potential legal risks. This analysis will guide you through the critical factors that determine when a parent company can be held accountable, offering clarity and actionable insights for navigating the complexities of corporate responsibility.

The Legal Framework: Understanding Parental Liability

A watchful eye overseeing interconnected gears, symbolizing parent company liability.

European competition law operates on the principle that a parent company can be held liable for the anti-competitive practices of its subsidiary if the parent exercises decisive influence over the subsidiary's actions. This principle is rooted in the concept that the parent and subsidiary form a single economic unit. The key question is whether the subsidiary independently determines its conduct in the market or essentially carries out the instructions of its parent.

To establish parental liability, the European Commission must demonstrate two key elements: firstly, that the parent company has the ability to exercise decisive influence over its subsidiary; and secondly, that the parent company actually exercised such influence. While proving actual exercise can be challenging, the law presumes that a parent company holding all or almost all of the capital in a subsidiary does, in fact, exercise decisive influence. This presumption shifts the burden of proof onto the parent company to demonstrate that it does not control the subsidiary's actions.

Here’s a breakdown of the factors that determine parental liability: Decisive Influence: The parent company must have the power to control the subsidiary's decisions. Single Economic Unit: The parent and subsidiary are treated as one entity for competition law purposes. Capital Ownership: Owning a significant portion of the subsidiary's capital creates a presumption of control. Joint and Several Liability: If found liable, the parent and subsidiary are jointly responsible for the infringement.
The Akzo Nobel case specifically addressed the issue of limitation periods. Under EU law, the Commission's power to impose penalties is subject to a five-year limitation period. The critical question was whether this limitation period applied only to the subsidiary directly involved in the anti-competitive conduct or if it also protected the parent company from liability.

Practical Implications: A Call for Corporate Vigilance

The Akzo Nobel case serves as a stark reminder of the potential liabilities faced by parent companies for the actions of their subsidiaries. While distinguishing between the substantive liability of a subsidiary and the procedural limitations on enforcement is conceptually sound, the ruling reinforces the trend of holding parent companies accountable. Businesses must, therefore, prioritize robust compliance programs and actively monitor the conduct of their subsidiaries to mitigate the risk of incurring substantial penalties and reputational damage.

About this Article -

This article was crafted using a human-AI hybrid and collaborative approach. AI assisted our team with initial drafting, research insights, identifying key questions, and image generation. Our human editors guided topic selection, defined the angle, structured the content, ensured factual accuracy and relevance, refined the tone, and conducted thorough editing to deliver helpful, high-quality information.See our About page for more information.

This article is based on research published under:

DOI-LINK: 10.1093/jeclap/lpx067, Alternate LINK

Title: Akzo Nobel And Others V Commission: When Can Parent Companies Be Liable For The Acts Of Subsidiaries Even If Action Against The Subsidiary Is Time-Barred?

Subject: Law

Journal: Journal of European Competition Law & Practice

Publisher: Oxford University Press (OUP)

Authors: Jens Peter Schmidt

Published: 2017-09-23

Everything You Need To Know

1

Under what conditions can a parent company be held liable for the actions of its subsidiary according to EU competition law?

Within the EU competition law framework, a parent company can be held accountable for a subsidiary's anti-competitive actions if the parent exercises decisive influence over the subsidiary. This accountability arises from the principle that the parent and subsidiary are viewed as a single economic unit. Proving liability requires demonstrating the parent's ability to exert decisive influence and that it actually exercised such influence. Ownership of all or nearly all of the subsidiary's capital creates a presumption of control. The parent and subsidiary can be held jointly and severally liable for any infringement.

2

What did the *Akzo Nobel* case reveal about the enforcement of EU competition law, and how does it relate to parent company liability?

The *Akzo Nobel* case clarifies that the limitation period for imposing penalties under EU law applies to the subsidiary directly involved in the anti-competitive conduct. The ruling serves as a reminder of the potential liabilities faced by parent companies for the actions of their subsidiaries. Businesses should focus on actively monitoring the conduct of their subsidiaries to mitigate the risk of incurring substantial penalties and reputational damage.

3

What specific factors determine parental liability in the context of EU competition law?

Factors determining parental liability include: *Decisive Influence* where the parent company must have the power to control the subsidiary's decisions, *Single Economic Unit* where the parent and subsidiary are treated as one entity for competition law purposes, *Capital Ownership* where owning a significant portion of the subsidiary's capital creates a presumption of control and *Joint and Several Liability* where, if found liable, the parent and subsidiary are jointly responsible for the infringement. The European Commission must demonstrate these key elements to establish parental liability.

4

Why is it crucial for businesses to understand the concept of parental liability?

Parental liability matters because it ensures ethical business practices and helps to mitigate potential legal risks within multinational corporations operating in the EU. Parent companies can face substantial penalties and reputational damage if their subsidiaries engage in illegal or harmful activities. By understanding and addressing parental liability, companies can better navigate the complexities of corporate responsibility.

5

What exactly does the term *decisive influence* mean in the context of parent company liability, and why is it significant?

The concept of *decisive influence* refers to the parent company's power to control the subsidiary's decisions. If a parent company can dictate the subsidiary's actions, it can be held liable for the subsidiary's anti-competitive practices. The *Akzo Nobel* case highlights the importance of determining whether a parent company exercises *decisive influence* over its subsidiary in order to establish liability.

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