Final answer:
A subsidiary may issue new stock to external parties to decrease its debt burden by obtaining capital without repayment obligations, while complying with regulatory and reporting requirements and adjusting to shared control with its shareholders.
Step-by-step explanation:
A subsidiary might decide to issue new shares of common stock to external parties to reduce the subsidiary's debt burden. When a subsidiary issues new stock, it receives financial capital without the obligation of repaying the principal amount or making regular interest payments, which is a compelling advantage over borrowing through loans or issuing bonds. Issuing stock provides funds that can be used to pay off outstanding debts, thereby improving the financial leverage and potentially the creditworthiness of the company.
However, it is important to note that issuing new shares often involves diluting the ownership of existing shareholders, and it requires the company to adhere to reporting requirements to shareholders and regulatory agencies like the Securities and Exchange Commission (SEC). Moreover, the cost of issuing stock can be high due to the need for investment bankers and attorneys, and it also converts the company into one that is publicly responsible to a board of directors and shareholders, impacting the decision-making process and control.