The company plans to develop internet communications software based on the Thunderbird product, code and brand.
Mozilla will provide $3m of seed funding, and has recruited Dr David Ascher, chief technology officer and vice president of engineering at ActiveState, to establish the new entity.
Dr Ascher has been an active member of the Mozilla community since 2000, initially as the lead of Komodo, a Mozilla-based integrated development environment, and as a director of the Python Software Foundation.
"Innovating in mail and communications advances our vision of choice across the spectrum of internet software," said Mitchell Baker, chairman of the Mozilla Foundation.
"David has been a respected member of the Mozilla community for many years and we are excited that he is joining Mozilla to lead this important effort."
Baker said in July that the company was considering several options for the Thunderbird brand.
After much consideration and feedback from the open source community, the Mozilla Foundation board approved the creation of the new subsidiary dedicated to developing, innovating and improving internet mail and communication software.
Tristan Nitot, president of Mozilla Europe, told vnunet.com that Firefox has around 110 million active users, compared to around 10 million active Thunderbird users, and that both products were "fighting for resources within the company".
He added that the company saw this as unfair on both products and took this step to "allow Thunderbird to reach its full potential".
Nitot confirmed that Mozilla expects all current Thunderbird developers to move across to the new subsidiary, and that both groups will still work closely together to develop the code base of the Mozilla platform.
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