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ABC Inc. is a Canadian public company in the pharmaceutical industry. ABC recently created XYZ...

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Accounting

ABC Inc. is a Canadian public company in the pharmaceutical industry. ABC recently created XYZ Inc. with the sole purpose of developing a new drug to treat cancer. Ms. Maggie Fong, a chemical scientist, is in charge of the team of scientists that develops the drug. Ms. Fong receives an annual salary, and also received a signing bonus of $10,000 when she accepted the appointment.

XYZ was established with 1,100 authorised voting common shares. On the day the company was established, it issued 100 voting common shares to Ms. Fong for $10,000. She is the only shareholder of XYZ. On the same day, XYZ issued 1,000 convertible bonds to ABC Inc. in exchange for $2 million. The bonds can be converted into voting common shares on a 1:1 ratio at any time at the sole discretion of ABC Inc.

The constitution of XYZ states that any changes to authorised and issued voting common shares or convertible bonds have to be approved by a majority of holders of convertible bonds.

Question:

Discuss whether XYZ is a subsidiary of ABC Inc.

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