2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16
A subsidiary is a legal entity whose activities are influenced by another, the so-called parent company. It's simple: the "daughter" cannot independently make most decisions and, without the permission of the parent company, cannot dispose of its assets or perform other actions determined by agreements between them. Accordingly, they also share responsibility for the decisions made - the head office is always responsible for the subsidiary. However, there is a certain financial nuance: the subsidiary is not responsible for the debts and obligations of the "parent" company.
Decisions on current activities are made by the executive bodies of the subsidiary, but the list of transactions with their maximum amounts, which can be made only with the filing of the board of directors of the parent company, should be specified in the statutory documents.
Features of managing subsidiaries
Subsidiaries are not necessarily managed only when the parent company owns a controlling stake. It suffices to define the relationship inseveral provisions included in the charter of a subsidiary, or specially draw up an agreement with the designation of the boundaries of influence. However, often a subsidiary is at the same time a dependent company, since the parent company holds more than 20% of the shares and authorized capital of the subsidiary.
Benefits of establishing a subsidiary
The parent and subsidiary company in one bundle is an opportunity to solve several problems facing the enterprise at once, including:
- Firstly: a subsidiary is the successful development of foreign economic activity - for which a "daughter" is created in offshore zones for preferential taxation in transactions with foreign partners.
- Secondly: a subsidiary company is an increase in the stability of the parent structure - all risky operations are transferred to the subsidiary, and the main department of the company does not suffer damage on those transactions that the dependent company has the right to conduct independently.
- Third: it is an improvement in the organization of current activities. A subsidiary may be entrusted with routine duties or special functions for the implementation of a single project, or activities that require regular licensing and accreditation.
- Fourthly: a subsidiary is an increase in competitiveness due to the allocation of core areas and specialization of the "daughter" in specific activities.
- And the last advantage: optimization of financial flows - creation of additional profit centers with the help of subsidiaries, obtaining an inflowinvestments, intracompany redistribution of income and costs.
Subsidiaries: kinship or addiction?
Subsidiary management is best suited for those holdings whose activities are diversified and which are vertically integrated structures. This approach makes it possible to quickly respond to changing situations in different industries and regions. But for scaling mono-activities, creating a branch network is more suitable, rather than opening subsidiaries.
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