Overview
This article explains when a group company belongs to the parent company's own business area and which scenarios result from this for implementing the LkSG.
Relevant for groups of companies with subsidiaries in Germany or abroad.
Principle
The parent company must fulfil its due diligence obligations in its own business area and in its supply chains.
A group company belongs to the parent company's own business area if the parent company exercises a decisive influence over it (Section 2 (6) LkSG).
Without decisive influence, the subsidiary is only relevant if it is also a supplier of the parent company.
Group companies can use group-wide or their own risk management for implementation.
Indications of decisive influence
The following indications are not exhaustive:
a high majority shareholding in the subsidiary
a group-wide compliance system
responsibility for managing core processes in the subsidiary
a legal constellation that provides for the possibility of exerting influence
personnel overlaps in management
decisive influence on the subsidiary's supply chain management
influence via the shareholders' meeting and a business area of the subsidiary that corresponds to that of the parent company, e.g. because it manufactures the same products or provides the same services
Foreign subsidiaries
If the German parent company exercises decisive influence over a foreign subsidiary, the subsidiary belongs to its own business area. The parent company must then fully meet its due diligence obligations for this subsidiary as well – regardless of whether the subsidiary operates in Germany or supplies to Germany.
Foreign companies are themselves subject to the LkSG if they have a branch in Germany (Section 13d German Commercial Code) and usually employ at least 1,000 employees in Germany (Section 1 (1) LkSG).
Scenarios
a) Parent and subsidiary are subject to the LkSG, without decisive influence
Both companies fulfil their due diligence obligations for their own business area and for direct and indirect suppliers. They can coordinate their measures, but each documents the fulfilment of its due diligence obligations independently.
b) Parent and subsidiary are subject to the LkSG, with decisive influence
The parent company also fulfils the due diligence obligations for the subsidiary's business area and suppliers. There are two ways to do this:
Centralised: The parent company defines risk management and due diligence processes, extends them to the subsidiary and monitors their implementation.
Decentralised: The subsidiary develops and implements measures and processes independently, following the parent company's requirements.
The subsidiary itself remains obliged to fulfil and document its due diligence obligations.
c) Only the parent company is subject to the LkSG
With decisive influence, the parent company also fulfils the due diligence obligations for the subsidiary's business area and suppliers. Without decisive influence, it only has to deal with the subsidiary if the subsidiary is also its (direct) supplier – the same obligations then apply as towards other direct suppliers. In this case, the subsidiary itself has no legal obligations.
d) Only the subsidiary is subject to the LkSG (e.g. subsidiary of a US parent company)
The subsidiary fulfils the due diligence obligations for its own business area and its direct and indirect suppliers, but not for the group as a whole. If the foreign parent company supplies the German subsidiary with goods or services, it is a direct supplier – the subsidiary then has the same obligations towards it as towards other direct suppliers.
Note: Since 7 November 2025, BAFA no longer reviews LkSG reports, and reports can no longer be submitted via BAFA's access. The due diligence obligations of the LkSG continue to apply unchanged. Details are in the article on the reporting obligation.
Next steps
Set up a cross-functional team, e.g. from compliance, legal and management of the parent company and subsidiaries
Create a complete list of subsidiaries
Check for each subsidiary, based on the indications, whether decisive influence exists
Include the most important suppliers of the subsidiaries in the risk analysis
Further information