The concept of a subsidiary company and step-by-step instructions for opening it. What are subsidiaries The difference between a branch and a subsidiary

After gaining independence, domestic large organizations relieved business of risks by branching out. A subsidiary is an independent legal entity that is managed by the parent company due to its controlling interest. According to the charter, this is an absolutely independent "player", having a separate name, legal address, state. The types of activities may not coincide: often such enterprises are created in order to promote promising areas that are not involved in the main organizations.

What is a subsidiary

Many people confuse the difference between the concept of a "subsidiary" and the role of an affiliate. The key difference is that the branch is not an independent legal entity. He is under significant influence management of the main enterprise, the address is the same as the field of activity. An independent organization may have a different line of business. The creation of a subsidiary takes place at the expense of the main founder's fixed assets, but the main "player" controls the production due to risk reduction.

Purposes of creation

There are several prerequisites for opening such an enterprise. A subsidiary company may be created for the following goals:

• to promote business in new areas of activity (expansion of production, change in the vector of development);
• to expand the business (for example, if a manufacturing legal entity decides to develop its own distribution network);
• to increase competitiveness (this will allow to introduce a new team, accelerate overall development);
• for protection (often network "players" may experience certain problems with assets or legislation, so a subsidiary helps to protect part of the assets from the claims of companies / the state, the court).

Specificity of activity

The peculiarity of the activities of the parent company is the presence of a controlling stake in such an organization, which allows you to manage a "side" legal entity. According to the norms of international, Russian legislation, it is necessary to have from 50% (+1 share) for full control, as well as the execution of blocking functions on solutions. This figure depends on the composition of the board, the number of shareholders. Sometimes 20% of the shares will be controlling, if other members have no more than 1% of the share. In joint-stock companies it is important to have a majority.

Ways to create subsidiaries and affiliates

There are two main ways to take control of a subsidiary. The first is to re-create a legal entity, where 50% of the shares will initially belong to the parent. The second option is redeem half or more shares, become the main manager of an existing LLC, OJSC, JSC or other types of legal entities. In the first case, a segment of activity can be formed from scratch, a new organization will be the direct object of investment. In the second case, all assets pass under the control of the parent legal entity.

Managment structure

A controlling stake in a certain participant provides the ability to manage, make key decisions on a particular issue. If a subsidiary company is 50% or more owned by the parent organization (with a controlling stake), then most of the issues are resolved directly by the head of the new enterprise, which actually duplicates the decisions of the main management.

If the organization does not have a controlling stake, then all conclusions pass through the vote of shareholders (members of the council). The management company has an approximately identical management structure, where there is a direct boss, director, a team of lawyers, and managers. The main thing in this case is CEO or immediate owner.

How to open a subsidiary

Subsidiaries are independent legal entities, therefore, in order to create them, it is necessary to re-develop the Charter and appoint the management team. A legal address is being created (assigned). The current assets are entered into the Charter, the participation shares are registered (for the first installment). Work is underway with the leaders of the parent company. According to the minutes of the meeting of shareholders, the final decision is made to create a new legal entity in order to expand or risk reduction for one type of activity or another.

Preparation of the Articles of Association and development of Regulations on the activities of SDCs

For the work of an independent legal entity, the original decisions of the meeting of the founders of the main office are required. At the same time, the charter is created anew, where the investors (their shares), the name, information about the founders, the conditions of production, and the final legal address are registered. Prepared by the main office statements according to state forms 13001, 13002, which will subsequently have to be declared at the notary. If a separate company is acquired in the form of a controlling stake, then meetings are held, decisions are made on the formation of a subsidiary.

Making a decision at the meeting of shareholders and preparing documents for opening a subsidiary

At the decision of the shareholders, a decision is made to establish a subsidiary. All this is prescribed by the secretary, signed. Questions about future expenses, profits in the unit and how the reorganization of property and assets will be carried out are also resolved there. To create a separate company under the direction of the existing head office, it is necessary initial prepare the following list of documents for submission to the state chamber:

1. Statement by the CEO or decision of the board of directors.
2. Letter from the bank about opening a new account.
3. The drafted Charter of the enterprise, which prescribes subsidiary liability.
4. A new legal address is indicated (a certificate of office rental or other is issued).
5. Information about the founders.
6. Copies of the act of acceptance, receipt of payments or assets (if such a procedure was carried out).

Registration of a subsidiary

The final decision on the registration of a new company is made by the state registration chamber. If the management of the main office decides to simply create a legal entity, without linking it to the main enterprise, then the legal entity will not have the status of a subsidiary. Before registration, the required type of management can be selected: board of directors, separate management company, sole proprietorship (100% of shares). A subsidiary company can start its activities immediately after obtaining a certificate on the registration of a legal entity.

Appointment of the head and chief accountant

The main office conducts the appointment of the head and the chief accountant. To do this, draws up a decision or order in writing with a seal. When creating a legal entity, the head is already indicated initially or is selected by the shareholders. Further changes are carried out by the composition of the managers of the subsidiary. The direct director remains under the influence of the main office.

What is the difference between a subsidiary and a branch and a representative office

The same factors are in the payment of debts. As in the case of a branch, the main management company covers the loss, and the main office appropriates the commercial profit. In the event of bankruptcy, the costs are transferred to the parent legal entity, but it does not suffer from actual material losses (the branch or representative office is not a separate legal entity). Subsidiary is different from a branch or representative office by the following factors:

• the presence of its own legal address, the Charter and the management team;
• the ability to work in any field of activity, regardless of the main office;
• most of the transactions are executed on behalf of the main office.

Legal independence

The organization is characterized by subsidiary legal independence - the managerial function is taken over by local managers, and decisions remain with the main office. Unlike a branch, a separate legal entity has its own seal and concludes all deliveries, purchases, sales on its own behalf. Execution of independent transactions leads to the presence of a separate bank account. The final net profit is distributed among shareholders. The principal firm's debts can be covered by these profits, which is often the case in international corporations.

Decision-making power

All key decisions cannot be made on your own. This requires the final word of the board of shareholders of the parent company. Decisions can be made locally regarding purchasing, production control process, sales, methodology and more. Creation of new products, technologies is underway under control main office management. The two leaders are in constant contact with each other. Given the direct appointment of directors by the parent organization, disobedience is not allowed, which is often enshrined in the Charter.

Recognition and fulfillment of obligations

All actions are based on the written opinions of the directors. Orders in writing with a seal are received at the legal address of the second company. There are obligations only in relation to the company's own activities. However, the media often follow the policies of the parent company and its subsidiaries.

When is a parent company liable for the debts of a subsidiary?

The parent company bears responsibility for the debts of a subsidiary, if:

• a written agreement was drawn up between the two enterprises, which describes the terms of liability of the subsidiary type;
• the main office led the dependent company to negative financial results by issuing certain management decisions.

Otherwise, each legal entity bears legal and material responsibility separately, because organizations have separate property (assets), bank account, income and expenses. Liability for debts may arise as a result of a court decision, when one of the parties was declared bankrupt, and debts to creditors will have to be returned to the second member of the holding.

Financial activities

Financial activity is independent, because a separate bank account is created for the established company. All receipts, acts of acceptance and other documents are issued to a new legal entity. To do this, a seal is created with its name and address. Financial activities may differ from those of the main office. For example, if the parent organization produces raw materials, and the second company performs legal advice, consulting. Financial statements cannot be linked to each other. Tax documents are submitted separately.

Accounting

To start the company's activities, it is necessary to create a separate bank account. The head office of management has a separate and independent financial system, so all reporting is done separately, in accordance with the budget. The parent and subsidiary enterprises have different balance sheet according to the charter, legal address. Tax reporting is submitted to the territorial authority at the place of residence office, an accounting department is separately hired to carry out reporting on behalf of the DC.

tax accounting

Tax accounting is also kept separately, and all reporting is submitted to the territorial fiscal authority. Under the law, a subsidiary has separate and independent assets that are not intertwined with the parent organization. Administrative functions are performed under the direction of the director of the DC. Weaving can occur if part of the assets is transferred from the main firm in the course of its activities.

Relationship between parent and subsidiary

An independent market participant is a subsidiary, which is always under the influence of the head office. The recruitment of employees, the choice of a system of work, etc. remain for local managers. Enterprises are connected only by clauses in the charter and by the founders, when the controlling stake belongs to the main company. Any participant can work abroad and represent the interests of another in foreign countries, before investors. An investor can invest in a subsidiary without having to contact the head office manager directly.

Consolidated reporting

One of the types of financial statements is consolidated. It is rented from several participants working as one. This also applies to parent or subsidiaries. It is necessary to compose it in order to reflect the real situation of the entire financial group. After all, if one participant has a loss, then the shares of the second may fall from this (and vice versa). In consolidated reporting, special attention is paid to the capital of two independent firms, their relationship, communication and activities.

The issue of consolidated reporting is clearly spelled out in international standards, norms - IAS 27, IFRS 3, 28 and 31. The system of international financial reporting standards describes the need to indicate indicators of debit, credit, assets and other financial details. In the Russian Federation, this topic is disclosed by the Orders of the Government of 1998-1999.

tax incentives

Under general conditions, tax benefits are allowed if a number of legal requirements are met. According to the norms of the laws, the DC has the form of a separate legal entity and can act as an independent payer of value added tax. As a result, tax incentives for transactions between companies are fixed only in the position of "arrival-departure" of funds or assets. Income tax is deducted once.

Pros and cons of subsidiaries

To decide on the advisability of creating a subsidiary, you need to weigh all the pros and cons. Advantages.

Don't know what a subsidiary is? Consider its main features, advantages and disadvantages, as well as the order of creation.

Dear readers! The article talks about typical ways to solve legal issues, but each case is individual. If you want to know how solve exactly your problem- contact a consultant:

APPLICATIONS AND CALLS ARE ACCEPTED 24/7 and 7 days a week.

It's fast and FOR FREE!

We give the data that are prescribed in the legislation of Russia in 2020. When opening a branch or subsidiary, the founders must take into account all the differences.

If many have heard about the branches, few people know about the subsidiary. We will determine whether it is worth giving preference to a subsidiary company, having considered all the nuances of work and opening.

Important Aspects

Almost all large organizations were created spontaneously - some firms were bought and others were sold. But when the assets were already identified, a spontaneous restructuring began, which exists in our time.

Therefore, the question still remains - to prefer branches or a network of subsidiaries when expanding business. There is no single answer.

The decision should be made at the head office, which will take into account the strategic goals, type of activity. Typically, branches are opened by companies that have one line of business. Most prefer to create subsidiaries.

Basic moments

The company has the right to have a subsidiary and a dependent business company, which will have the right of a legal entity.

They should be created in accordance with the requirements of the law of Russia, and in the case of creation outside the country, the laws of the corresponding state, unless other rules are established.

The company becomes dependent if the company has more than 20% of its authorized capital.

Advantages and disadvantages

Let's note the positive points:

Disadvantages of such an enterprise:

No freedom of action	Since you have to fulfill the tasks set by the parent company. Subsidiary produces what is imposed on it
No ability to control deliveries	Production and finance. And this complicates technical development.
All funds are managed by the parent company	And therefore it is difficult to invest in a subsidiary. The parent company allocates some funds, which are fully distributed
If the parent company has several subsidiaries	When they go bankrupt, he has to pay for the losses. And funds are allocated from the income of another subsidiary. In case of severe bankruptcy, the subsidiary company will also have to be closed. Only a sponsor or other company can correct the situation

Legal grounds

When creating a subsidiary, the provisions should be taken into account.

The rules for opening a branch were also considered in what was adopted by the government on December 26, 1995.

You should also be guided by separate provisions.

What is a subsidiary

A subsidiary is a branch of a large joint-stock company. It is created if there is a need to expand the activities of the main enterprise.

The parent company manages such a company, since it was originally created with the money of such a company. A subsidiary must be subordinate to the parent community.

The parent company is responsible for the subsidiary to government agencies, it is under its control.

A subsidiary company (as a legal entity) is created by other companies, transferring part of their property to it for economic management.

The founders must approve, determine who will be the head, exercise other rights of the business owner in accordance with the law.

The structure of the subsidiary is the same as the structure of the parent company. If several subsidiaries are created, a holding is formed.

In order to exercise control over the subsidiaries, the parent company may have a controlling stake. It also has the right to conclude agreements or indicate in the charter, prescribing the conditions for agreeing on a development strategy.

What is the difference with branch

A subsidiary and a branch are not exactly the same thing. The difference is the autonomy of the structure of the subsidiary from the parent company, but at the same time, the presence of an inextricable link with it.

This allows you to override other differences between a subsidiary and a subsidiary.

The parent company, which heads the subsidiary, has the right to create branches in one territorial district, and subsidiaries in another. All structures in this case can have one goal.

Therefore, in practice, the activities of a branch and a subsidiary are similar. They have only distinctive statuses on legal grounds.

The branch is an independent subdivision, but carries a limited It is placed outside the location of the main organization.

It is not a separate legal entity and does not have its own property. Leading persons are appointed at the head office, and they have the right to act only on the basis of a power of attorney.

Video: creation of a subsidiary of Ethtrade. Main news from the conference in Sochi

The subsidiary is a separate legal entity. It is created according to the same rules as LLC. It has its own property, authorized capital, and is also responsible for its activities.

The firm has the right to act on its own behalf, while the branch acts on behalf of the main organization.

Opening order

Nowadays, it is much easier to create limited liability companies. First you need to collect and issue the necessary certificates.

You will need:

• charter of the subsidiary;
• documentation of the parent organization;
• the decision to establish a subsidiary;
• statement ;
• a certificate confirming that the company has no debts.

There are 2 options for creating a subsidiary. The first option is the following. First, the charter of the subsidiary is drawn up, reflecting all the necessary conditions.

If the company has several founders, then they write an agreement on the distribution of shares. This is followed by the preparation of the protocol by the founders.

This document will confirm the creation of a subsidiary. When creating a company, the founders must indicate its location and contacts.

Responsibility of the parent organization

A subsidiary is usually independent, has personal capital and property. It is not responsible for the debts of the main organization, and the parent company is also not held liable for the debts of the subsidiary.

But the controlling enterprise should be liable for the debt and risks of the subsidiary only in such situations:

In the first situation, one of the debtors must pay off all obligations to creditors, and then the rest are not liable for debts.

In the second situation, the parent company must pay off the debt of the subsidiary, which it is not able to pay itself from its property.

The parent company also creates a subordinate organization to distribute the company's resources and highlight the most promising areas of specialization.

Therefore, the competitiveness of the entire enterprise increases. A subsidiary can fulfill routine obligations, and through this, the management of the entire company can be optimized.

The transfer price and transactions reduce the amount of tax and financial losses and costs.

A subsidiary is an independent entity, the controlling stake or authorized capital of which belongs to the parent company. The subject has the right to control the supply, sale of products, transportation, but all its income belongs to the parent organization. The latter provides funds for needs: ensuring the continuity of production, paying salaries, and so on.

Subsidiary Features

"Daughter" is directly dependent on the state of the main subject. The latter actually ensures the activities of the organization and controls it. Consider the advantages of a subsidiary:

• All debts of the subsidiary are repaid by the parent organization.
• All financial responsibility rests with the parent company.
• The parent company must also provide a competitive advantage.

However, the child entity also has disadvantages:

• Lack of freedom to choose the production direction and other basic aspects of activity.
• Limited opportunities in technical development.
• It is difficult to accumulate funds for development, since all the capital belongs to the parent company.

Subsidiaries are usually created by large enterprises. They are needed for the distribution of activities.

Ways to create a subsidiary

To organize a subsidiary, a number of documents will be required: documentation of the main entity, the charter of the subsidiary, a decision to establish a company in writing. The parent entity must confirm the absence of debts at the present time. There are two ways to create a company.

First way

Consider the detailed algorithm for creating a subsidiary organization:

1. Drafting the articles of association of the subsidiary. The document must specify all the conditions for the existence of the subject.
2. If the fixed capital has several owners, it is required to draw up an agreement with the distribution of shares.
3. Drawing up by the founders of the protocol, which confirms the fact of the creation of the subject.
4. The director of the parent company must create a document that indicates the contacts and address of the "daughter".
5. Issuance of a certificate confirming the absence of debts.
6. Filling .
7. After completing all the listed documents and appointing the chief accountant, you need to provide papers to representatives of the tax authority in which the subject is registered.

If the main office has debts, it will not be able to adequately finance the subsidiary.

Second way

The first method involves the creation of a company, the second - the appropriation of an existing organization. That is, there is an absorption by mutual creation. Consider the algorithm of this procedure:

1. Choice of direction of production of a subsidiary company.
2. Development of the charter of the organization.
3. Development of own seal, bank details, registration of the address of the absorbed entity.
4. Appointment to the position of General Manager and Accountant. Coordination with them of all aspects of the activity.
5. Appeal to the State Chamber with an application and the main list of documents: a certificate from a banking institution on the account, characteristics of the general director and chief accountant of the "daughter", the charter with all signatures, a letter of guarantee, information about the founder in writing, copies of documents with payments (the last two documents must be certified).
6. Obtaining evidence that the subject has been registered.

After all these steps, the company can start its activities.

Responsibility of parent and subsidiary companies

A subsidiary is an independent entity. The organization owns both capital and property. She is not liable for the debts of the parent entity. However, the parent organization is liable for the debt of the "daughter" in some circumstances:

• Registration of the transaction at the direction of the parent company. This instruction must be documented. In this situation, both the "daughter" and the parent organization are liable in equal shares.
• "Daughter" because of the orders of the parent company was declared bankrupt. In this case, if the subsidiary does not have the resources to pay off the debt, the main office pays the balance.

In all other cases, the subsidiary is liable for its own debts.

Subsidiary management

The management of a subsidiary company is characterized by a number of features:

• A large number of control subjects.
• Irreversible impact on the "daughter".
• Independence of the organization in carrying out economic activities.
• Restrictions on the activities of the "daughter".

There are several models for managing a subsidiary. Let's consider them all.

Sole executive structure

Management through a sole body is the most common option. The sole body is the general director. It has the following responsibilities:

• Work on current tasks.
• Management of existing property (its value should not exceed 25% of the book value of assets).
• Management of the internal structure of the organization.

The CEO has fairly broad powers. In order for the parent company to track all management decisions, it makes sense to draw up a document that regulates all the rights and obligations of a person. Appropriate regulations can be included in the charter.

All key management decisions can be made by the board of directors, which includes the owners of the parent organization. This model is relevant with a small number of "daughters". Otherwise, the following problems may occur:

• Overload of board members.
• Difficulty in making decisions.

The board of directors is limited in decision making. If the council makes a decision that is not within its competence, it will not be valid in accordance with Articles 67 and 69 of Federal Law No. 208. The competence of the council can be expanded at the expense of the powers of the executive bodies. However, the latter should be included in the charter.

Management Company

Management of the "daughter" can be entrusted to the Criminal Code. The advantages of this method: centralization of management, operational distribution of resources, the ability to coordinate all actions. However, if there are many subsidiaries, it is difficult for one management company to keep track of them.

Governing body

The essence of the board is that the heads of the subsidiaries are members of the board of the main entity. An employment contract must be concluded with each of the board members. Features of the formation of the board are similar to the election of the general director. Members of the management team are elected by the meeting of shareholders or the board of directors.

Features of taxation

"Subsidiaries" and parent companies, from the point of view of taxation, are recognized as interdependent. This gives the fiscal authorities the right to monitor the correctness of pricing, to revise taxation in accordance with market prices. Since 2008, the "daughters" have received a big benefit in calculating income taxes. If the parent organization owns a controlling stake, the dividends received from the "daughter" are completely exempt from profits. The benefit will not apply if the subsidiary is registered in offshore zones.

Quick navigation through the material

What is a subsidiary - according to the norms of legal law, this term should be understood as a legal entity that is created by a certain parent company, endowing it with a number of functions and powers and the right to use property belonging to the main organization. At the same time, the charter, according to which the subsidiary will operate, is drawn up directly in the parent organization, which also determines the composition of the leadership of the newly formed department.

Subsidiary - how it differs from a branch or from another organizational and legal form of an enterprise. Legal advice will help you understand the nuances of management and establishment, explain the difference between a branch and a subsidiary, what are the principles of taxation in a particular case, and provide answers to other questions that arise in this area of ​​corporate law. In our company, legal services in tax law are carried out online at any convenient time.

Basic concepts

A subsidiary is a legal entity organized in order to expand the economic activity of the main company, achieved by increasing production capacity and expanding the product sales market.

According to Article 105 of the Civil Code of the Russian Federation, a subsidiary is a legal entity, which is a kind of economic company, which is created by another company that owns the main part of the capital of this company. As a consequence, the parent company has full authority and control over the decisions that subsidiaries and affiliates will make.

Quite often, the concepts of a subsidiary and a branch are confused with each other, the difference between which is obvious, but for an ignorant person it is quite difficult to separate them. Legal advice will allow you to find out the main differences and features of both forms.

To understand the difference between a branch and a subsidiary, it is important to know the full powers of both in matters of management and responsibility.

corporate lawyer

Free legal consultation in Moscow and other Russian cities

Get legal advice on the registration and operation of subsidiaries

What is the difference between a branch and a subsidiary

What is a Subsidiary is a legal entity that is a fairly independent business entity. The head of the subsidiary can independently make decisions related to department management, personnel issues and marketing activities. In addition, the subsidiary has its own charter, although it is developed in the parent organization. The management structure of the subsidiary is fully responsible for its actions.

As for the branch, this form of organization implies the complete dependence of the latter on the main company. It is in the parent organization that the department is managed. Issues of a personnel nature, production component, marketing policy, etc. are also resolved there. In addition, the branch does not have its own charter, but is subordinate to the main one.

In the definitions of a subsidiary and a branch, the difference is significant. However, the common point is the participation of the parent company in the share capital of the branch and in the management of it.

Many are concerned about the question of whether it is possible to organize a subsidiary or branch of an organization in another state. This question can be answered by a lawyer in international law of our company absolutely free of charge.

What is a subsidiary of legal services in Moscow and other cities of the Russian Federation

Get legal advice by phone

Subsidiary: pros and cons

What is a subsidiary - the pros and cons of which will be explained in detail by a lawyer's consultation - is the most common type of business expansion. This option is convenient for the parent company, as it allows you to expand its sphere of influence in the market, and is much easier than creating a new enterprise.

Benefits include the following factors:

• bankruptcy proceedings cannot be initiated in relation to a subsidiary, since the responsibility for debt obligations to creditors lies with the parent company;
• the marketing strategy, which is maintained by subsidiaries and affiliates, is developed in the parent organization, which acts as a guarantor of product quality, provides an opportunity to use the company's reputation, etc.;
• the subsidiary does not have to worry about calculating and budgeting, this responsibility lies with the accounting department of the parent company;
• the subsidiary pays its expenses at the expense of the parent organization.

However, such organizational and legal relations have their drawbacks. Among the main disadvantages characterizing a subsidiary, the following factors can be distinguished:

• dependence of the branch on the parent company in matters of the technological nature of production and the range of manufactured products, which deprives it of the possibility of independent growth, the introduction of rational proposals or the expansion of the scope of activities;
• the presence of restrictions on the use of fixed capital, since its distribution takes place according to a clearly defined plan established by the management of the main enterprise;
• in the event of the bankruptcy of the main company, the subsidiary will cease its activities, which is also possible with the ruin of other dependent branches, since all profits will be redistributed to cover the expenses of other subsidiaries.

Required documents

A subsidiary is a legal entity, therefore its creation is accompanied by the submission of a set of documents to the registration authority. The tax office at the location of the branch acts as a registrar.

Legal advice will not be an extra step in the preparation of documents. A specialist will help you avoid major mistakes and speed up the process.

In order to open a subsidiary, you will need the following documents:

• registration and statutory documents of the parent company;
• statutory documents of the created subsidiary;
• the decision of the management of the main organization on the establishment of a dependent branch, drawn up in accordance with the requirements of the law;
• an application written in accordance with the established form (Р11001);
• a certificate from the bodies exercising state tax control that the parent company has no debts.

What is a subsidiary - issues related to paperwork or the registration process can be excluded by prior consultation with a lawyer. On our portal, this can be done for free, and at any convenient time.

Attention! Due to recent changes in legislation, the legal information in this article may be out of date! Our lawyer can advise you free of charge

When a company buys another company, the second company usually becomes a subsidiary. For example, Amazon owns many subsidiaries, including everything from Audible (recorded books) to Zappo (online shoe sales).

What is a subsidiary

A subsidiary is a company owned and controlled by another company. The own company is called the parent company or sometimes the holding company.

The parent company of a subsidiary may be the sole owner or one of several owners.

If a parent company or holding company owns 100% of another company, that company is referred to as a "wholly owned subsidiary".

There is a difference between a parent company and a holding company in terms of operations. The holding company does not have its own operations; he owns a controlling interest and owns the assets of other companies (subsidiaries).

A parent company is simply a company that operates a business and owns another business, a subsidiary. The parent company has its own operations, and the subsidiary company may carry on the related business. For example, a subsidiary may own and manage the parent company's property assets and hold liability separately from those assets.

A corporation or S corporation is owned by shareholders. In this case, the parent company usually owns 50% or more of the shares of the subsidiary.

An LLC is owned by members whose ownership interest is controlled by an operating agreement.

An LLC may own another LLC.

Why form a subsidiary

Subsidiaries are common in some industries, especially real estate. A company that owns real estate and has multiple properties may form a common holding company, with each property being a subsidiary. The rationale for this is to protect the assets of different entities from each other's liabilities.

For example, if company A owns companies B, C and D (each property) and company D is sued, the other companies are not affected.

How a subsidiary is formed

A subsidiary is formed by registration in the state in which the company operates. Ownership of a subsidiary is indicated during registration.

Suppose company A wants to create a subsidiary to manage its properties. The subsidiary, Company B, registers with the State and indicates that it is wholly owned by Company A.

How the subsidiary operates

The subsidiary operates as a regular company, while the parent company has only supervision. If the parent company exercised day-to-day supervision of the subsidiary, this would mean that the parent took over the responsibility of the subsidiary.

Accounting and taxes for subsidiaries

From an accounting perspective, a subsidiary is a separate company, so it will keep its own financial statements, bank accounts, assets, and liabilities. Any transactions between the parent company and the subsidiary must be recorded.

Many companies present consolidated financial statements (balance sheet and income statement) to shareholders, showing that the parent company and all subsidiaries are combined.

From a tax point of view, a subsidiary is a separate tax entity.

Each subsidiary has its own tax identification number and pays all of its taxes according to the type of business it has.

If a parent company owns 80% or more of the shares and voting rights for a subsidiary, it may file a consolidated tax return to take advantage of offsetting the profits of one subsidiary against losses from another. The subsidiary must agree to be included on this consolidated tax return.

Subsidiary Disadvantages

LegalZoom notes that if the parent company is sued, it may move to subsidiaries. “If the parent LLC has a claim or a court order on it, the assets of the subsidiaries may be at risk. Any action against the parent can legally go after the assets of the parent company, which in this case are the LLC itself.”

If company B is a subsidiary of company A and company B receives a claim, company A is still liable.

If it is a completely separate company, the liability remains separate.

One of the disadvantages of subsidiaries is that they are more complex from a tax, legal and accounting point of view. You will need both tax and accounting professionals to help you set up a branch and move on to the rules.

Subsidiary vs. Partnership and Associate

A subsidiary is a company that is at least partly owned by a parent company. In the case of an associate, the parent company owns a lesser controlling interest.

The term "partner" can be misleading. In the context of company ownership, a subsidiary is similar to an associate in which the parent company owns less than 50%.

But in the world of e-commerce, partnerships are contractual relationships between two separate companies to sell products or services. In this case, neither company has ownership or responsibility for the activities of another company.

What is the difference between a subsidiary and a DBA (Doing Business As)

A subsidiary is a legal entity registered in the State. "Doing Business As" or DBA trade name status is not a legal entity; it is the name used by the business when trading with the public. For example, Company XYZ might do business as Jim's Auto Repair.

Denial of responsibility: Accounting and taxes for subsidiaries are complex and every situation is different. This is a very brief general summary of accounting, legal and taxation for ancillary situations. Get an attorney, CPA and tax professional to help you set up and run a subsidiary.

Source: https://ru.routestofinance.com/what-is-subsidiary-company

What is a subsidiary

The concept of "subsidiary" was introduced in the Civil Code of the Russian Federation in 1995. Since then, the legal status of this market entity has been regulated by Art. 105 of the Civil Code of the Russian Federation. Changes were made in 2014. Today, the legal status of these organizations is determined by Art. 67.3 of the Civil Code of the Russian Federation.

The organization will be recognized subsidiary if another partnership or society has the right to determine the decisions that are made by such a company. This link is based on one of the following circumstances:

• predominant participation in the authorized capital;
• on the basis of an agreement;
• otherwise legally (this provision is contained in the charter of a subsidiary company, representatives of the main company are included in the list of participants, etc.).

The legislator defined these conditions in a general way. For example, he did not approve the minimum size of the share that the parent company must have in the capital of a subsidiary.

The peculiarity of this type of organization is that they can exist in any organizational and legal form, for example, LLC, JSC, etc.

The specificity lies in the special relationship with the main societies, which are sometimes referred to as maternal. For example, they may influence the actions of subsidiaries.

Specially regulated material liability:

• the subsidiary is not liable for the debts of the parent company;
• the subsidiary and the main organization are jointly and severally liable for the debts that were formed under the transaction concluded as a result of the decision of the parent company;
• the parent company will be subject to subsidiary liability if its actions or decisions have led to the insolvency of the subsidiary.

These rules are enshrined in Art. 67.3 of the Civil Code of the Russian Federation.

Opportunities and responsibilities

A subsidiary is an organization that has its own capital and property. It concludes contracts and performs other functions as a full-fledged market participant.

In accordance with the Civil Code of the Russian Federation, a subsidiary is not liable for the debt of the parent company. She, in turn, can be brought to subsidiary or joint liability in some cases. For example, losses in a transaction initiated by the parent company are reimbursed by either the parent or subsidiary.

In this case, they are jointly and severally liable. More details are given in Art. 322 of the Civil Code of the Russian Federation. With joint and several liability the creditor may demand performance of obligations from all debtors jointly or from any of them separately. If one organization does not implement them, then he can apply to another.

Subsidiary liability of the parent organization occurs if its actions and decisions have led to the insolvency of a subsidiary. According to Art. 399 of the Civil Code of the Russian Federation in such a situation, principal debtor. It is the first requirement. the firm must repay that share of the subsidiary's debt that it is unable to cover with its own assets.

Also Read: How Many Branches Can One Legal Entity Have?

Influence of the parent firm

The peculiarity of the subsidiary is that its decisions may be influenced by another organization. Such relationships are allowed for various reasons.

The parent company does not always have a predominant share in the authorized capital of the subsidiary.

Such relationships may contractual nature. For example, a controlled company receives the right to use technologies for the production of a certain object, but it must coordinate the sale of goods with the main company.

A subordination clause may be included in the charter of a subsidiary. Such companies have their own governing bodies, which means that control should have a certain consolidation. The charter may stipulate what types and amounts of transactions must be carried out with the approval of the board of directors or the general meeting.

As a result, the parent organization will not take part in operational management, but will be able to influence the adoption of strategically important verdicts. This rule is relevant for the main companies that have several subsidiaries.

Order and methods of opening

The creation of a subsidiary organization can be done in two ways. First - by registering a new company or partnership. In such a situation, a standard procedure is followed, which includes next steps:

• making a decision on the creation of a new market entity, drawing up a verdict in paper form (protocol);
• preparation of documents for registration, execution of an application in the form P21001, drafting of the charter;
• transfer of documents to the tax office for registration of a new company;
• issuance of a verdict by the registration authority.

If the decision is positive, the subsidiary can start its activities, and if it is negative, it can file a complaint against the decision of the tax inspectorate for illegal refusal.

The second way is "absorption". This happens when a company created as an independent company becomes dependent on another market participant. Usually, this is due to financial difficulties.

There are quite a few examples of such "absorption". For example, the Volkswagen concern turned many auto-building companies in Europe into subsidiaries in a similar way.

Once the firms have mutually agreed on such a decision, they must the following actions:

• properly fix the procedure and tools by which the parent organization will be able to influence the subsidiary (for example, draw up an agreement or change the charter);
• the subsidiary must have all the necessary details, including its own current account, legal address, seal;
• it is necessary to select the managers of the subsidiary, including the director and chief accountant;
• apply to the state chamber with the necessary documents (certificate from the bank on the state of the account, characteristics for officials, information about the founders, act of acceptance and transfer of the fund, charter);
• obtain a certificate of registration of a subsidiary.

Comparison with branch and representative office

A subsidiary is often compared to branches and representative offices of legal entities. These concepts have common features, but at the same time are very different from each other.

Branches and representative offices are mentioned in Art. 55 of the Civil Code of the Russian Federation. This article presents legal definitions of such concepts:

• representation- a separate subdivision of the company, which is located outside its location, represents the interests of the company and implements their protection;
• branch- a separate subdivision of the company, which is located outside its location, exercises all its powers or part of them (including those assigned to representative offices).

In accordance with Part 3 of Art. 55 of the Civil Code of the Russian Federation, representative offices and branches are not legal entities. They do not have their own property and management bodies. All this is provided by the main company or partnership. Managers manage branches or representative offices on the basis of a power of attorney. Information about subordinate structures must be indicated in the Unified State Register of Legal Entities.

Thus, the main difference is that subsidiaries are independent firms that are full market participants. They have their own property, are responsible for their actions, and have their own governing bodies. The subsidiary operates on the basis of its charter.

Main firm always will be responsible for the obligations of its representative offices and branches. Any penalties apply to her. The parent organization always acts in court on behalf of its branches and representative offices.

At the same time, the law defines cases when it will be held liable for the transactions of a subsidiary. Moreover, it can be solidary and subsidiary, depending on the specific circumstances of the case.

The procedure for creating these forms of dependent market entities also differs. So, branches and representative offices are formed by the decision of the main organization. To create them, appropriate changes are made to the charter of the company.

Subsidiaries are founded in the same manner as other legal entities.

The decision to create company founders. A subsidiary company can start its activities when the tax office makes a decision on its registration.

Advantages and disadvantages

Among virtues subsidiaries are as follows:

• in case of bankruptcy, the debts will be repaid by the main firm;
• the parent organization is also responsible for the budget and expenses;
• the absence of tough competition, which is conducted not by a subsidiary, but by the main enterprise.

The main disadvantage of a similar form is the full accountability of the parent company. In such conditions, it can be problematic to develop an organization. The entire capital is managed by the parent company, which means that only it can decide on the possibility of financing certain areas. In addition, there is a risk of closing a subsidiary due to the liquidation of the main company.

For the parent organization, this form of interaction may be associated with additional costs, for example, in case of unprofitable transactions or insolvency.

So, a subsidiary is a popular way of organizing interaction between two market entities. Thanks to this model, smaller firms can stay afloat at the expense of large organizations. Those, in turn, expand even more, increasing incomes and the number of consumers.

Mergers and acquisitions of companies are described in detail in this video.

Source: https://ZnayBiz.ru/forma/strukturnye-podrazdeleniya/dochernyaya-organizaciya.html

It's a subsidiary. What are subsidiaries

A subsidiary is a separate legal entity with a full set of rights and obligations. Let's take a closer look at what a subsidiary is, how it works, and how it differs from a branch.

What is a subsidiary

A subsidiary is a full-fledged legal entity with a full set of rights and obligations inherent in the chosen organizational form. In its economic activities, it is guided by constituent documents, has its own balance sheet and bank accounts.

Download and get to work:

What will help: the instruction contains a clear procedure for checking management reporting, a detailed analysis of each indicator characterizing the financial condition of the company.

What will help: establish interaction between the financial services of the management company and subsidiaries. It sets out the deadlines by which departments provide data for reports and budgets.

What will help: the regulation describes the main principles and methodology for the formation and approval of the budgets of the group's subsidiaries. Special attention is paid to the procedure for making changes to the approved plans. The use of this document in practice will help to reconcile the interests of all participants in the budget process.

How is a subsidiary different from a branch?

A branch, unlike a subsidiary, is completely deprived of autonomy, since it is considered only a separate division of the company. Its activities are regulated by the regulation on the branch, which is approved by the head office.

Table. Comparison: branch and subsidiary

Branch Subsidiary

To create a branch, it is not necessary to form the authorized capital. The degree of autonomy is established by the head unit. Simplified financial settlements between the parent company and the branch. Legislation does not allow companies to create branches on a simplified taxation system. The head unit is responsible for the activities of the branch. Unlike a subsidiary, the branch is functionally limited. If you plan to split your business, it makes no sense to create a branch

A subsidiary company is an independent legal entity that bears all the risks associated with its own activities. The legislation does not restrict the procedure for creating a “daughter”. A subsidiary company can carry out statutory activities without restrictions. If the business is licensed, the “daughter” will have to re-register a license

"Daughter" or branch: what is more convenient and cheaper for the company

Your decision whether to open a subsidiary or whether a branch is enough, or even a separate division, depends on the tax consequences and asset protection. We have identified criteria by which it is easier to determine what to choose.

Compare "daughter" or branch

How to open a subsidiary

To register a "daughter" of the main company, you will need:

1. Form the statutory documents, the minutes of the meeting of the founders on the appointment of the director. Assure them at the notary for registration (five working days);
2. Conclude an agreement of intent or receive an information letter from the landlord to confirm the address of the location of the unit (five working days);
3. Register a legal entity in the funds and statistical bodies at the location of the subsidiary (five working days);
4. Make a seal of the newly created company (one working day);
5. Open a bank account in the usual way (three working days).

How to finance a subsidiary

The company can finance its subsidiary both at the expense of its own funds and at the expense of bank loans.

This can be done on your own in the following ways:

• make a contribution to the authorized capital in cash or property;
• transfer the necessary funds as an advance payment for future work (services);
• provide goods for sale with a significant deferred payment;
• give a loan.

When attracting loans, it should be taken into account that a subsidiary company at the beginning of its activity is most often unprofitable. The bank can either refuse the funds or offer them as collateral for another, more profitable enterprise of the company.

It is possible to increase the authorized capital of the "daughter" to a positive value of net assets, but this is a costly and lengthy procedure, which also requires careful legal registration.

In addition, the owners of many companies deliberately keep the share capital low, thereby reducing the risk of losses.

All settlement transactions between the subsidiaries of the group are formalized only by business contracts, since in such cases they may be the basis for the transfer of funds or the transfer of assets.

Elena Ageeva, financial director of LLC "Golder Electronics"

It's time to solve the problems of the "daughter" if she:

• submits budgets, financial plans and management reports with delays to the parent company;
• regularly deviates from the approved cash flow budget;
• increases the loan portfolio without objective reasons;
• delays the start of internal audit;
• disrupts the terms of payment to counterparties;
• makes mistakes in data on debts, expenses, receipts.

For more information on what to do in such a situation, read the material "How to keep track of the money of subsidiaries" from the magazine "Financial Director".

How to manage and control a subsidiary

The management of the subsidiary is assumed by the CEO, who may be one of its co-owners. In addition, in a subsidiary company, you can create your own executive body, such as a board or board of directors.

Since all operational activities are managed by their own management, and strategic decisions are made by the owners, this gives more autonomy to the subsidiary. Current control in it is based on regular monitoring of the implementation of approved performance targets and analysis of identified deviations.

This is the best option, allowing, on the one hand, not to inflate the staff of managerial personnel, and, on the other hand, to quickly respond to the changing situation in the subsidiary.

Natalia Alekseeva, financial director of GC "TRIERE", Ph.D. n.

We will use the following parameters for evaluation:

— efficiency of decision-making;

— the risk of exceeding authority by the management of the unit;

- the efficiency of the movement of fixed assets and goods;

- the degree of mobility of employees;

- the number of functions performed on site;

- the degree of workload of the staff of the parent company.

Each indicator is evaluated by points (from 1 to 5). The higher the score, the easier it is to manage the unit. We then compare the combined score for the two scenarios (see Table 1).

Table 1. Assessment of the degree of controllability of a branch and a subsidiary

Indicator Branch Subsidiary NoteExplanation Score, score Explanation Score, score

Efficiency of decision-making	Decisions are made in the branch within the established powers or according to the regulations of the head unit	5	All key decisions are made by the general meeting of participants	3	Decisions for a branch are made more quickly than for a subsidiary
The risk of exceeding authority by the management of the unit	Headed by the head (head, director) of the branch, acting on the basis of a power of attorney	5	Headed by a director acting on the basis of the charter	2	For a branch, the risk of abuse of authority by officials is lower
Efficiency of moving property	The movement of property is documented by internal invoices, since in fact the movement of objects occurs between divisions of one legal entity without transfer of ownership	5	Only through contributions to the authorized capital or purchase and sale agreements. It is possible to transfer assets free of charge, but there is a risk of a tax audit	3	All transactions with subsidiaries are possible only under contracts. Significant tax disadvantage for a subsidiary – transactions are subject to tax administration (controlled transactions)
Goods movement speed	Movement of goods within a group of companies without transfer of ownership. Taxes do not arise, since there is no sale of goods	5	Only under a sales contract or commission with the occurrence and payment of VAT and income tax	3	The subsidiary has a clear price advantage, as the additional markup in the supply chain is less than that of the subsidiary
Efficiency of movement of employees	According to an additional agreement to the employment contract on changing jobs	5	Only through transfer or dismissal	3	Transactions for the branch are carried out according to a simplified procedure, do not require the conclusion of contracts, are less painful for the staff
Number of functions performed on site	Part of the auxiliary functions can be performed by the head unit	5	The performance of all auxiliary functions in the areas of: HR, lawyers, accounting, IT, etc. should be ensured, including through outsourcing. The parent unit may perform part of the functions of a subsidiary, but only under an agreement	3
The degree of workload of the staff of the parent company	High		Low	5
Overall assessment criteria	30	22

If we evaluate seven criteria for the degree of manageability of divisions (see Table 1), we can conclude that it is easier to manage a branch (30 points) than a subsidiary (22 points).

For more information about which is more profitable a subsidiary or a branch, see the decision "Branch or subsidiary: how to compare and choose" from the "System Financial Director".

Accounting and management accounting in a subsidiary

The subsidiary maintains accounting and tax records, as well as being responsible to the tax authorities for the formation of reliable reports.

How to liquidate a subsidiary

The liquidation of a subsidiary is a complex and lengthy process that involves carrying out all the procedures provided for in this case: making a decision by the owners or obtaining a court decision, creating a liquidation commission, notifying counterparties, settling debts, dismissing staff, etc. All this requires additional financial costs . The liquidation of the "daughter" is considered completed, and the legal entity - ceased to exist only after making an entry about this in the Unified State Register of Legal Entities.