Features of Creating and Managing a Subsidiary

Before you could go for the subsidiary company registration, there are certain aspects you should be aware of. Read further to get the complete features of subsidiary companies. 

Not sure what a subsidiary is? Let us consider its main features, advantages and disadvantages and the sequence of work. Dear readers! The article talks about common ways to resolve legal issues, but each case is unique. If you want to know how to solve your problem – contact the consultant: Applications and calls are accepted 24/7 and without days. It’s fast and free! Here is the data specified in the legislation of Russia in 2019. When opening a branch or subsidiary, founders must take into account all differences. Although many people have heard of branches somehow, few know about a subsidiary. Considering all the nuances of work and innovation, we will determine whether it is worth prioritizing a subsidiary. Important features Almost all the big companies were created spontaneously – some companies were bought, others were sold. But when the assets had already been determined, spontaneous restructuring began, which is in our time. So, the question still remains – whether to look for branches or subsidiary networks when expanding a business. There is no single answer. The decision must be made at the head office, which takes into account the strategic goals and the type of process. Branches are usually opened by companies with a tax business. Most prefer to create subsidiaries. Basic moments The company has the right to own a subsidiary and subsidiary, which acquires the ownership of a law firm. They must be made in accordance with the requirements of the law of Russia, and if other provisions are not established, the laws of creation and the relevant state outside the country. The company will be dependent if the company has more than 20% of its authorized capital. Advantages and disadvantages Notice the positive points: Disadvantages of such a company: There is no freedom of action Because you have to fulfill the tasks set by the parent company.

The sub produces what is forced upon her There is no way to control distributions Production and finance. And it complicates technological development All funds are managed by the parent company So it is difficult to invest in a subsidiary. The parent company provides some funds that are fully allocated If there are multiple subsidiaries in the parent community Then, when they go bankrupt, he has to make up for the losses. Funds are allocated from the income of another subsidiary. In the event of a severe bankruptcy, the subsidiary must also close. Only a sponsor or another company can fix the situation. Legal Fundamentals When creating a subsidiary, the rules must be taken into account. The rules for opening a branch were also adopted by the government on December 26, 1995. You need to be guided by personal arrangements. What is a subsidiary A subsidiary is a branch of a large joint stock company. It will be created if necessary to expand the operations of the core company. Such a company is managed by the parent company because it was originally created with the money of such a company. The subsidiary must be subordinate to the parent community. The parent company is a subsidiary of the state-owned enterprise, which is under its control. A subsidiary (as a law firm) is formed by other companies, converting a portion of their property to it for economic management. The founders must recognize, determine who will be the leader and exercise the other rights of the business owner in accordance with the law. The structure of the subsidiary is similar to the structure of the parent company. If multiple subsidiaries are created, a capture develops.

In order to exercise control over the subsidiaries, the parent company may have a controlling role. She has the right to conclude agreements or to specify in the charter and the conditions for agreeing to the development strategy. What a difference in a branch A subsidiary and a branch are not exactly one. The autonomy of the subsidiary structure differs from the parent company, but at the same time has an inseparable connection with it. This allows you to redefine other differences between sub and branch. The parent company, which heads the subsidiary, has the right to set up branches in one regional district and branches in another. In this case, all structures may have the same goal. Therefore, in practice, there are similarities in the operations of a branch and subsidiaries. They have unique positions only in legal terms. The branch is an independent unit, but has a limited one. It is placed outside the location of the main system. It is not a separate law firm and does not own property. Executives are appointed in the head office and can only act on the basis of authority.

A subsidiary is an independent law firm. It was created according to the same rules as the LLC. She owns the authorized capital and is also responsible for its own operations. The company is free to act on its behalf, while the branch acts on behalf of the parent organization. Opening Order These days it is very easy to set up limited liability companies. First you need to collect and issue the required certificates. You will need: Charter of subsidiary; Parent organization documents; The decision to create a subsidiary; Report; Certificate confirming that the company has no debts. There are 2 options for creating a subsidiary. The first option is as follows. First, the charter of the subsidiary is drawn up and reflects all the necessary conditions. If the company has several founders, a contract for the distribution of shares will be written. Following this the protocol is prepared by the founders. This document will confirm the establishment of a subsidiary. When creating a company, founders must specify its location and contacts. Responsibility of the parent organization A subsidiary is generally independent and has personal capital and property. It is not responsible for the debts of the parent organization and the parent company is not responsible for the debts of the subsidiary.

But only in such circumstances should the regulatory body be liable for the debt and risks of the subsidiary: In the first situation, one of the debtors has to pay all the obligations to the debtor and then the rest are not responsible for the debts. In the second situation, the parent company has to repay the debt of the subsidiary, which cannot repay it from its property. The parent company also creates a subsidiary to allocate and over-allocate organizational resources in the trusted directions expertise. Therefore, the competition of the whole company increases. The subsidiary can perform routine duties and, due to this, the management of the entire company will be optimized. With transaction costs and transactions, tax and financial losses and costs are reduced. After independence, the domestic large corporations, by branching out their operations, freed the business from risks. A subsidiary is an independent law firm that is managed by the parent company due to its regulatory interest. According to the charter, it is a completely independent “player” with a unique name, legal address , status. Types of activity are inconsistent: often such companies are created to promote trusted areas that are not involved in key companies. What is a subsidiary Many people confuse the difference between the role of a subsidiary and the role of a branch. The main difference is that the branch is not an independent law firm. The significant influence it has under is similar to that of the key company management, the address functionality department. An independent system may have a different direction of operation. Creating a subsidiary takes place at the expense of the principal founder’s fixed assets, but restricts production due to minimizing key “player” risks. Purpose of creation There are many preconditions for opening such a company.

A subsidiary may be formed for the following goals : To promote business in new areas of activity (expansion of production, change of vector of growth); To expand the business (for example, if the manufacturing law firm decides to create its own distribution network); Increase competitiveness (this will introduce a new team and accelerate overall growth); For security (often network “players” may face some sort of problem with assets or the law, so the subsidiary may help protect certain assets from companies / government, court claims). The uniqueness of the process The uniqueness of the parent company is the presence of a controlling stake in such company, which allows it to manage a “subsidiary” law firm. According to international standards, Russian law requires you to have at least 50% (+1 share) of absolute control , as well as perform preventive functions in solutions. The composition of this indicator group depends on the number of shareholders. Sometimes 20% of the shares are restricted to other members if they do not exceed 1% of the share. It is important to have a majority of V joint stock companies . Methods for creating subsidiaries and subsidiaries There are two main ways to control a subsidiary. The first is to re-create a law firm where 50% of the shares are owned by the original parents. The second option is to become the principal manager of half or more shares, existing LLC, OJSC, JSC or other types of law firms to recover . In the first case, the division of operations may be newly created, and the FDI object will be a new entity. In the second case, all assets will be transferred under parental control. Law firm.

Management system Provides the ability to manage the controlling role of a particular participant, making key decisions on a particular issue. If a subsidiary owns 50% or more (with controlling shares) of the parent company, most problems will be solved directly by the head of the new company, who will actually copy the decisions of the main management. If the company does not have a controlling stake, all comments go through a shareholder (board members) vote. V Management Company has drawn up an almost identical management system where there are direct employer, director, team of lawyers, managers. The chief is a general manager or direct owner of this case . How to open a subsidiary Subsidiaries are independent law firms and, therefore, need to re-create the charter and appoint a management committee to create them. The creation (allocation) of the legal address is ongoing. Existing assets are matched in the charter and the shares of the company are registered (for the first installment). Work is going on with the leaders of the Thai company. According to the minutes of the shareholder meeting, the final decision is made to expand or create a new law firm. Minimize risks for a specific type of activity. Preparation of charters and regulations on the activities of subsidiaries and subsidiaries The operation of an independent law firm requires the original results of the meeting of the founders of the head office.

At the same time, the charter was newly created, where information about investors (their shares), name, founders, production conditions and final legal address are recorded. From the side of the head office , State Forms 13001, 13002 on the reports , which must then be notified by a notary. If a sole proprietorship is acquired in the form of a controlling stake, meetings are held and decisions are made on the formation of a subsidiary. Making a decision at a meeting of shareholders and preparing documents for opening a subsidiary Based on the decision of the shareholders, the decision to set up a subsidiary is made. All of these are recommended by the signed secretary. There are also settled questions about future expenses, the division’s profits and how the restructuring of the property and assets will be carried out. To create a separate company under the guidance of the existing head office it is necessary to prepare a list of the following documents to be submitted to the initial state chamber: Reporting from the outside is the decision of the Director General or the Board of Directors. Bank certificate about opening a new account. Compiled Charter of the Company, which prescribes subsidiary liability. A new legal address is specified (office lease certificate or other issued). Information about the founders. Receipt of acceptance act, payments or assets (if such procedure is carried out).

Registration of a subsidiary The final decision on the registration of a new company is made by the State Registry. If the management of the head office decides to create a law firm without merging with the main firm, the law firm will not be a subsidiary. Prior to registration, select the type of management you want: Board of Directors, Private Management Company, Private Owner (100% Shares). A subsidiary may begin its operations immediately upon obtaining certification upon registration with a law firm. Appointment of Chairman and Chief Accountant The head office makes the appointment of chairman and chief accountant. To do this, draw a conclusion or order in writing with a stamp. When a law firm is formed, the chairman is already initially indicated or elected by the shareholders. Further changes are being made by a combination of deputy managers. The immediate director is under the influence of the head office. What is the difference between a subsidiary, a branch and a representative office? The same factors are present in the payment of arrears. Like a branch, the loss is offset by the main management company, and the business profit is owned by the head office … In the event of bankruptcy, costs are transferred to the parent law firm, but it is not affected by actual material losses (a branch or representative office is not a separate law firm). Subsidiary differs from a branch or representative office by the following factors: Its own legal address, association and management committee articles; Ability to work in any field of operation regardless of head office; Most transactions are made on behalf of the head office. Legal freedom This system is characterized by sub-legal independence – the management function is taken by the local managers and the decisions are in the head office.

Unlike a branch, a separate law firm has its own brand and completes all distributions, purchases, sales own name … Making separate transactions leads to a separate bank account. The final net profit was distributed through the stock system. The parent company’s debts can be offset by these profits, which are mostly in multinational companies. Decision-making power You cannot make all the important decisions yourself. This requires a final word from the group of shareholders of the parent company. On-site decisions can be made about the procurement, production management process, sales, method and more. The development of new products and technologies is under the control of the head office management. The two leaders are in constant contact with each other. Disobedience cannot be tolerated if the directors are directly appointed by the Thai organization, which is often mentioned in the articles of association. Recognizing and fulfilling duties All actions are based on the written comments of the directors. Orders in writing with the stamp are received at the registered office of the second company. Obligations are for the company’s own operations only. However, the media often follow the policies of the parent company and its subsidiaries. When the parent company is liable for the debts of the subsidiary If the parent company bears a liability for the debts of a subsidiary, A written agreement was drawn up between the two companies, which outlines the terms of the subsidiary type of liability; Negative Financial Decisions The pro company was guided by the CEO and released some management decisions. Otherwise, each law firm assumes separate legal and material liability because the firm has separate assets (assets), bank account, income and expenses.

Debts may arise as a result of a material liability court decision, when one of the parties declares bankruptcy and must repay the debts owed to the second member. Financial activities The financial function is independent because a separate bank account is created for the established company. All receipts, certificates of acceptance and other documents are drawn up for a new law firm. For this, a stamp was created with its name and address. Financial operations may vary from head office. For example, if the parent company produces the raw materials, the second company provides legal advice and counseling. Financial statements cannot be attached. Tax documents were issued separately. Accounting To start a company, you need to create a separate bank account. The head office of the administration has a separate and independent financial system, so all reports are prepared separately according to the budget. The parent and the parent have a different balance according to the charter and legal address. A separate accounting department has been set up to report on behalf of the office, DC, at the place of registration of the tax return surrendered to the regional authority . Tax Accounting Tax accounting is also kept separate and all reports are submitted to the Regional Financial Authority. Under the law, a subsidiary has separate and independent assets that are not linked to the parent company.

Administrative activities are carried out under the guidance of the DC Director. Consolidation can occur if certain assets are transferred from the parent company during its operations. Parent-spouse relationship An independent market participant is a subsidiary that will always be under the influence of head office. There are staff managers, job selection and many more for local managers. When the controlling shares are owned by the parent company, the companies are incorporated only by the divisions and founders in the charter. Any participant can work overseas and represent the interests of overseas investors. An investor can invest in a subsidiary law firm without directly contacting the head office manager. Consolidated Report One of the types of financial statements is integrated. It is surrendered by many members working together. This also applies to parents or affiliates. In order to reveal the true state of the whole it is necessary to compile the financial committee … After all, if a participant incurs a loss, the shares of the second party may fall out of it (and vice versa). Special focus on consolidated statements Dedicate the capital of the two independent companies, their relationships, affiliations and operations. The issue of consolidated reporting is clearly articulated by international standards and regulations – IAS 27, IFRS3, 28 and 31. The Organization of International Financial Reporting Standards describes the need to specify indicators of debit, credit, assets and other financial details.

V Russian Federation This topic was covered by government orders from 1998-1999. Tax benefits Generally, tax breaks are allowed when many legal requirements are met. Under the terms of the laws, DC has the form of a separate law firm and can act as an independent payer of value added tax. As a result, tax breaks for transactions between companies are recorded only at the “arrival and departure” level of the fund or assets. Income tax is deducted once. Pros and cons of subsidiaries To make a decision on the advice to create a subsidiary, you need to weigh all the pros and cons. Benefits. A subsidiary is a legally free entity that has the right to control the production, supply, development of new technologies, sale of shares and more, but the subsidiary must pay all its proceeds into the hands of the parent company and this entity. In turn, it allocates funds for workers’ salaries, technology, production, and various expenses. In fact, the position of the subsidiary depends on the financial position of the parent company’s head office. From a legal point of view, a subsidiary is practically a free company, funded by another company, however, today we see that the parent company has great influence over its subsidiary. That is, he controls production by changing leaders, keeping his own people, and pointing out the way to shoot goods. Dear reader! Our articles talk about the usual ways of resolving legal issues, but each case is unique. If you want to know exactly how to solve your problem – contact the online advisor form on the right or call by phone.

It’s fast and free! There were changes to the regulation in 1994, until then the subcommittee from the legal side was completely controlled only by the parents, however, a law was adopted in 1994 stating that the subsidiary is a business created or acquired by another entity. Such a society has the right to dictate the conditions of production, however, at the same time, it depends heavily on the Thai society. As a rule, differences of opinion do not arise between the daughter and parent communities because they are directly dependent on each other. In the event of a bankruptcy of the subsidiary, the parent company must accept all blame for the incident. If the financial position of the head office finds a force that can fully finance its subsidiary, it has the right to compel it to do so. Opening a subsidiary, step-by-step instructions To date, opening a sub-community has not been difficult, and you will need: All documents of the governing body. Subsidiary Charter. Legal decision to establish a subsidiary. You will need a p11001 application form. It is important to have documentation that your company has no debt. There are two ways to create a child community: Method No. 1 Instruction To get started, draw up a special charter for the subsidiary, which specifies all the conditions you need. If the company has multiple holders of fixed capital, you will need to create a contract that is designed to distribute shares between them. It is necessary to draw up a protocol among the founders. This protocol should legally confirm the fact of creating a subsidiary.

When creating any company, including a subsidiary, you must specify its location and contact information. Only the director of the main community has the right to create such a document, which will control the subsidiary in the future. It is important to note that before registering a subsidiary, you must obtain a certificate from the head office stating that you have no debts. A subsidiary is registered only when all the debts of the parent community are paid off. If the sub-office suffers a loss due to financial loss by the head of the head office, through the court, the parent company will face a loss in favor of its subsidiary. You must complete the p11001 form. After completing all the above documents, the Chief Accountant has collected all the required documents and you have to submit all the documents for consideration at the place where your company is actually registered with the tax authority. Once all the contracts are ready, the subsidiary can start its presence. Method No. 2 Instruction There are times when a subsidiary is not created, but is assigned by mutual agreement. In the general population this can be called “absorption”. Everything happens very simply: one company destroys another, and then, for a small sum, gets it for itself.

There are a lot of companies acquiring companies today. Take the Volkswagen Group, for example, which has occupied almost the entire automotive business in Germany and Europe for many years. There is a plan that has proven to be of great concern, for example, to acquire the car maker Audi: when Audi faced financial difficulties in the late 20th century, only one car production floated it, but Volkswagen builds a car of the same class, which is cheaper, more beautiful. High reliability and excellent in technical characteristics. Naturally, motorists will buy the Volkswagen product, not Audi. Such a plan would be unprofitable for the acquisition company, however, as this contribution would fully illuminate Audi, with the result that it would seek financial assistance from Volkswagen, which would then become a subsidiary, with its own directors. There are many examples like this, for example, take the same automotive industry: today there are three concerns: Volkswagen, Toyota, General Motors. They control 85 percent of the total automotive world. However, some people think about everything famous brands belong to these concerns.

Well, if you take over the company, or you agree to everything by mutual agreement, you should do the following: First, you need to choose the direction of the subsidiary, ie by giving detailed instructions production. Keep in mind that the product of the subsidiary may differ from the parent community. The subsidiary is an independent entity, however, the rules are still dictated by the parent community, so a comprehensive charter regarding the subsidiary must be developed. By law, the absorbed company must have its own seal, its bank account, its address and the individual to be registered so take care of all this. Decide on the selection of Director and Accountant in the supervised community. Accept all profit related agreements with them. You must contact the state. Room and submit an application with the following documents: Certificates from the bank about your account, service characteristics of the sub -community, the charter you signed, the letter of guarantee stating the address of the sub-community, you must provide in writing information about the founder, certified copy of the transfer of funds and certified copies, certified copies Payment transactions. The last step is to obtain the certificate of the registered subsidiary, after which the company can register and start its obligations.

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