Subsidiary: types, advantages and disadvantages
Website design By BotEap.comSubsidiary is a company that is controlled by another company through a parent-child relationship. A company is only said to be a subsidiary company if the parent has a majority stake by owning more than 50% of the issued share capital. A single subsidiary can have subsidiaries. Subsidiaries are considered separate legal entities for tax and regulatory purposes.
Website design By BotEap.comTypes of subsidiaries – Three types of Subsidiaries can be formed, namely:
Website design By BotEap.com-Limited public liability
-Minimum capital – Must be paid by the founders (minimum two members)
-Shares – You can issue registered or bearer shares
-Management – Must have at least three directors. A director must be a permanent resident of the country.
-Private limited liability
-Minimum capital – Must be paid by the founders
-Compartitions: shares must be registered. Bearer shares cannot be subscribed
-Management: managed by one or more managers
-Limited liability cooperative company
-Minimum capital – Three partners are needed. A quarter of the capital contribution must be paid up
-Commissions: the shares are registered
-Management: a cooperative company with limited liability and managed by one or more managers Website design By BotEap.comParent company – Subsidiary relationship Website design By BotEap.comIt is important that the subsidiary is recognized as an independent corporation managed by the board of directors even though it was incorporated by the parent company. This does not mean that the subsidiary is not controlled. The parent company has the legal authority to hold the subsidiary accountable for meeting financial targets. Website design By BotEap.comFor the parent to control the independent subsidiary it must be: Website design By BotEap.com-The sole shareholder
-Include voting control provisions in a subsidiary article.
-Prepare statutes that define the authority of the officers, their mandate in office and removal
-Prohibit the modification of the bylaws without the approval of the shareholders. Website design By BotEap.comLegal risks Website design By BotEap.comAs long as the parent company holds its subsidiary accountable for the expectations of its board of directors, there is little risk that the parent will be held liable for the wrongdoing of the subsidiary. But, if the parent company exerts excessive control, for example, has the same board of directors, the use of common letterhead, in such case, the parent company and the subsidiary are treated as one and the parent company is liable. of the debts of the subsidiaries, etc. Website design By BotEap.comAdvantages and disadvantages of the subsidiary Website design By BotEap.comAdvantage
-Considerable tax advantages and legal protections
-Ability to offset the gains and losses of one part of a business with another.
-Some countries allow subsidiaries to file tax returns on profits earned in that country
-Credit claims and responsibilities are locked in that subsidiary and cannot be transferred to the parent company
-Allows the creation of joint ventures with other companies, each of which owns a part of the new business operation Website design By BotEap.comDisadvantages
-The legal paperwork related to the creation of a subsidiary can be long and expensive
-Control also becomes a problem when a subsidiary is partially owned by another external organization
-Minimum capital – Must be paid by the founders (minimum two members)
-Shares – You can issue registered or bearer shares
-Management – Must have at least three directors. A director must be a permanent resident of the country.
-Private limited liability
-Minimum capital – Must be paid by the founders
-Compartitions: shares must be registered. Bearer shares cannot be subscribed
-Management: managed by one or more managers
-Limited liability cooperative company
-Minimum capital – Three partners are needed. A quarter of the capital contribution must be paid up
-Commissions: the shares are registered
-Management: a cooperative company with limited liability and managed by one or more managers Website design By BotEap.comParent company – Subsidiary relationship Website design By BotEap.comIt is important that the subsidiary is recognized as an independent corporation managed by the board of directors even though it was incorporated by the parent company. This does not mean that the subsidiary is not controlled. The parent company has the legal authority to hold the subsidiary accountable for meeting financial targets. Website design By BotEap.comFor the parent to control the independent subsidiary it must be: Website design By BotEap.com-The sole shareholder
-Include voting control provisions in a subsidiary article.
-Prepare statutes that define the authority of the officers, their mandate in office and removal
-Prohibit the modification of the bylaws without the approval of the shareholders. Website design By BotEap.comLegal risks Website design By BotEap.comAs long as the parent company holds its subsidiary accountable for the expectations of its board of directors, there is little risk that the parent will be held liable for the wrongdoing of the subsidiary. But, if the parent company exerts excessive control, for example, has the same board of directors, the use of common letterhead, in such case, the parent company and the subsidiary are treated as one and the parent company is liable. of the debts of the subsidiaries, etc. Website design By BotEap.comAdvantages and disadvantages of the subsidiary Website design By BotEap.comAdvantage
-Considerable tax advantages and legal protections
-Ability to offset the gains and losses of one part of a business with another.
-Some countries allow subsidiaries to file tax returns on profits earned in that country
-Credit claims and responsibilities are locked in that subsidiary and cannot be transferred to the parent company
-Allows the creation of joint ventures with other companies, each of which owns a part of the new business operation Website design By BotEap.comDisadvantages
-The legal paperwork related to the creation of a subsidiary can be long and expensive
-Control also becomes a problem when a subsidiary is partially owned by another external organization