A subsidiary is an independent entity whose controlling stake or authorized capital belongs to the parent company. The entity has the right to control supplies, sales of products, and transportation, but all its income belongs to the parent organization. The latter provides funds for needs: ensuring continuity of production, paying salaries, etc.
Features of a subsidiary
The “daughter” is directly dependent on the condition of the main subject. The latter actually ensures the activities of the organization and controls it. Let's consider the advantages of a subsidiary:
- All debts of the subsidiary are repaid by the parent organization.
- All financial responsibility rests with the main company.
- The parent company must also provide a competitive advantage.
However, a child entity also has disadvantages:
- Lack of freedom to choose production direction and other basic aspects of activity.
- Limited opportunities for technical development.
- It is difficult to accumulate funds for development, since all capital belongs to the parent company.
Subsidiaries are usually created large enterprises. They are needed to distribute areas of activity.
Ways to create a subsidiary company
To organize a subsidiary, you will need a number of documents: documentation of the main entity, the charter of the subsidiary, a decision to create a company in writing. The parent entity must confirm that it is currently free of debt. There are two ways to create a company.
First way
Let's consider a detailed algorithm for creating a subsidiary organization:
- Drawing up the charter of a subsidiary company. The document must specify all the conditions for the existence of the subject.
- If the fixed capital has several owners, it is required to draw up an agreement with the distribution of shares.
- Drawing up by the founders of a protocol that confirms the fact of creation of the entity.
- The director of the parent company must create a document indicating the contacts and address of the subsidiary.
- Issuance of a certificate confirming the absence of debts.
- Filling.
- After completing all the listed documents and appointing a chief accountant, you need to provide the papers to representatives of the tax authority with 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 assignment of an existing organization. That is, absorption occurs by mutual creation. Let's consider the algorithm of this procedure:
- Selecting the direction of production for a subsidiary.
- Development of the organization's charter.
- Development of your own print, bank details, registration of the address of the acquired entity.
- Appointment to the position of General Director and Accountant. Coordination with them of all aspects of activity.
- Applying to the State Chamber with an application and the main list of documents: certificate from banking institution about the account, characteristics about the general director and chief accountant of the subsidiary, the charter with all signatures, letter of guarantee, information about the founder in writing, copies of documents with payments (the last two documents must be certified).
- Obtaining a certificate that the subject has been registered.
After all these steps, the company can begin 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 responsible for the debt of the subsidiary in certain circumstances:
- Execution of the transaction at the direction of the parent company. This instruction must be documented. In this situation, both the subsidiary and the parent organization are responsible in equal shares.
- The subsidiary was declared bankrupt due to the orders of the parent company. In this case, if the subsidiary does not have the resources to repay the debt, the main office pays the balance.
In all other cases, the subsidiary itself is liable for its debts.
Subsidiary management
Control subsidiary company differs in a number of features:
- A large number of management subjects.
- Irreversible impact on the “daughter”.
- Independence of the organization in carrying out economic activity.
- Restrictions on the activities of the subsidiary.
There are several models for managing a subsidiary organization. Let's look at them all.
Sole executive structure
Management through a single body is the most common option. By sole body is meant CEO. He has the following responsibilities:
- Working on current tasks.
- Management of existing property (its cost should not be more than 25% of book value assets).
- Control internal structure organizations.
The CEO has fairly broad powers. So that the parent company can keep track of everything management decisions, it makes sense to draw up a document regulating all the rights and obligations of a person. Relevant instructions 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 when there are a small number of subsidiaries. Otherwise, the following problems may occur:
- Overload of board members.
- Difficulty in coordinating 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 through the powers of executive bodies. However, the latter must be included in the charter.
Management Company
The management of the “daughter” can be entrusted to the management company. The advantages of this method: centralization of management, prompt distribution of resources, the ability to coordinate all actions. However, if there are many subsidiaries, one management company it's hard 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 board member. The 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 a tax point of view, are recognized as interdependent. This gives the right to fiscal authorities to monitor the accuracy of pricing and revise taxation in accordance with market prices. Since 2008, subsidiaries have received a greater benefit when calculating taxes on profits. If the parent organization owns a controlling stake, dividends received from the subsidiary are completely exempt from profits. The benefit will not apply if the subsidiary is registered in offshore zones.
A commercial company can operate in another region or even state by opening affiliated undertaking or branch. What are these structures?
What is a subsidiary?
Under subsidiary means a legal entity, authorized capital which belongs to the organization that founded it - the parent. Moreover, both companies can operate in different areas. Moreover, the parent organization is not always directly involved in the management of the subsidiary. But, as a rule, this happens, and the segment of the companies’ activities coincides.
Subsidiaries are established through state registration. In addition, the parent company develops a charter containing the required provisions for the subsidiary, and, if necessary, also a memorandum of association.
A subsidiary, since it is an independent legal entity, has property under its own management, with which it is liable for its obligations. Besides, this organization may be a plaintiff and defendant in court hearings independent from the parent company.
The subsidiary is not obliged to answer for the debt obligations of the parent company. In turn, reverse liability is provided for by the legislation of the Russian Federation. That is, if a subsidiary has financial difficulties, then the parent company may have subsidiary liability for the debts of the enterprise it owns.
What is a branch?
Branch- this is a structure dependent on the main organization, which is not an independent legal entity, but is located, as a rule, at a significant geographical distance from the head office. For example, in another subject of the Russian Federation.
The branch is completely subordinate to the head office in terms of management. All contracts are signed by the head of this structure, who carries out his activities under a power of attorney from the top managers of the main organization.
Information about established branches must be recorded in the company's constituent documents. These structures are formed on the basis of special provisions approved by management. State registration branches are not carried out as legal entities - you only need to notify the Federal Tax Service of their opening. If this is not done, tax authorities may issue fines. But if we talk about branches of foreign companies in Russia, they must be accredited by the State Registration Chamber.
Branches have assigned property, but are not able to have property or non-property rights, do not act as a party to legal relations and are not plaintiffs or defendants in court hearings.
The property that is assigned to the branch is often used as collateral for the debts of the main organization. In turn, the head office bears property liability for the obligations of its division.
Comparison
The main difference between a subsidiary and a branch is that the first structure is legally independent from the main organization, while the second is completely connected with it. This predetermines all other differences between the two types of firms in question.
It should be noted that main organization can establish a branch in one region and a subsidiary in another, and both structures will do the same thing. Therefore, in practice, the activities of branches and subsidiaries usually do not differ much. Their status is different only on legal grounds.
Having determined what the difference is between a subsidiary and a branch, we record the conclusions in the table.
Table
| Affiliated undertaking | Branch |
| What do they have in common? | |
| The activities of a branch of an organization in one city and its subsidiary in another may be the same | |
| What is the difference between them? | |
| Is a legally independent organization | Is a structure completely dependent on the head office |
| Can be a subject of legal relations, a plaintiff and a defendant in court | Cannot be a subject of legal relations and a participant in court hearings |
| Has separate property | Has secured property |
| Not liable for the obligations of the parent organization | Assets assigned to the branch may be recovered against the debts of the head office |
The ability to control the company's activities is guaranteed by ownership of its shares and is built on the principle of a participation system. The subsidiary exists in difficult conditions of participation of the parent company in its capital. That is, it is dependent on the head office. Until 1994, the term “organization” meant an enterprise that most of fixed assets (capital) of which belonged to another company.
A subsidiary company and the advantages of opening it
The founder of the created enterprise approves its charter and appoints a manager. In addition, the founder has many other rights of the owner provided for by current legislation in relation to the enterprise. The main purpose of creating enterprises is distribution internal resources organization and highlighting the most promising directions into separate specialized companies.The subsidiary is
group of companies. Business. Dictionary. M. INFRA M. Ves Mir Publishing House. Graham Betts, Barry Brindley, S. Williams and others. General editor: Ph.D. Osadchaya I.M. 1998 ... Dictionary of business terms - (subsidiary) A company owned or controlled by another company. Exists a large number of options for the scope of powers one may have in relation to decentralized decision-making on issues such as... ... Economic Dictionary - in which a controlling interest is in the hands of another parent.The concept of a subsidiary company and step-by-step instructions for opening it
Essentially, the condition of a subsidiary depends on financial situation mother's head office. From a legal point of view, an enterprise is practically a free organization, which is financed by another company, however, today we see that the parent has a gigantic influence on its subsidiary. That is, he changes managers, installing his own people, indicates the path of the downed goods and controls production. Changes in control occurred in 1994, until that time the subsidiary, from the legal side, was completely controlled by the parent only financially, however, it was in 1994 that a law was adopted that states that a subsidiary, which is also a business company, is a created or an enterprise acquired by another company. Such a society has the right to dictate the conditions of production, however, at the same time it has enormous dependence on the maternal community.What does subsidiary mean?
In particular, paragraph 1 of this article determines that one enterprise can be recognized in relation to another if a number of conditions are present in such a situation. Thus, the first option for recognizing one company as a subsidiary of another is the size of the share of the authorized capital owned by the parent company. If the specified size is predominant, that is, it gives the mother the decisive vote in the event of voting, then the other is in relation to her.Work, career, business
And in the city of Krasnodar, its branch opens, this is the enterprise. It can be said briefly and in strictly official language.enterprise - an enterprise created as a legal entity by another enterprise (founder) by transferring part of its property to it for full economic management. The founder of a subsidiary approves the charter of the enterprise, appoints its manager and exercises other rights of the owner in relation to the subsidiary, provided for by legislative acts on the enterprise. Now a little more detail and in simple language.
What is a subsidiary organization?
Looks like the right shoulder. Olga Osipova Artificial intelligence(117426) 7 years ago An entity is an entity that is controlled by another entity (called the parent). That is, when the enterprise (parent company). made a contribution to the company (subsidiary company). through which it exercises control over another - this is already a group and the enterprise is preparing a consolidated financial statements.Subsidiary company
are created when it is necessary to expand the activities of the main company. Such a company can only act under the leadership of the main (parent) company, since initially the subsidiary was created at the expense of the main company, or the contract states that the company is subordinate to the parent company. Therefore, the subsidiary is not responsible for the actions of the parent company, whatever they may be.Subsidiary company: features and goals of creation
Typically, a subsidiary is controlled through decisions made at a general meeting or by a board of directors. Creating a subsidiary An organization is created in the same way as any other commercial establishment. But at the same time, it is not an independent type of company, since its activities are carried out according to the model of the parent organization.Quick navigation through the material
What is a subsidiary - according to the norms legal law This term should be understood as a legal entity that is created by a certain parent enterprise, endowing it with a number of functions and powers and the right to use property owned by the main organization. In this case, the charter, according to which the subsidiary will operate, is drawn up directly in the parent organization, which also determines the composition of the management of the newly formed branch.
A subsidiary - how it differs from a branch or from another legal form of an enterprise. Consulting a lawyer will help you understand the nuances of management and creation, explain how a branch differs from a subsidiary, what the principles of taxation are in a particular case, and provide answers to other questions that arise in this area of corporate law. In our company, legal services on tax law are provided online at any time. convenient time.
Basic Concepts
A subsidiary is a legal entity organized for the purpose of expanding economic activity the main company, achieved by increasing production capacity and expansion of the product market.
According to Article 105 of the Civil Code of the Russian Federation, a subsidiary is a legal entity, which is a kind of business company that is created by another company that is the owner of the main part of the capital of this company. As a consequence of this, the main company has full rights to exercise direction and control over the decisions that will be made by subsidiaries and affiliates.
Quite often the concepts of subsidiary and branch are confused with each other, the difference between which is obvious, but for an ignorant person it is quite difficult to separate them. Consulting a lawyer will help you 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.
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What is the difference between a branch and a subsidiary?
What is a Subsidiary - a legal entity that is a fairly independent entity of economic activity. The manager heading the subsidiary can independently make decisions regarding the management department, 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 bears full responsibility for its actions.
As for the branch, this form of organization assumes the latter’s complete dependence on the main company. It is in the parent organization that the department is managed. Personnel issues, production components, marketing policies, etc. are also resolved there. In addition, the branch does not have its own charter, but is subordinate to the main one.
There is a significant difference in the definitions of a subsidiary and a branch. However, a common point is the participation of the parent company in the fixed capital of the branch and in the management of it.
Many people are concerned about the question of whether it is possible to organize a subsidiary or branch of an organization in another state. An international law lawyer from our company can answer this question absolutely free of charge.
What is a subsidiary of legal services in Moscow and other cities of the Russian Federation
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Subsidiary: pros and cons
What is a subsidiary - the pros and cons of which will be explained in detail by consulting a lawyer - is the most common type of business expansion. This option is convenient for the parent company, as it allows it to expand its sphere of influence in the market, and is much simpler than creating a new enterprise.
The advantages include the following factors:
- bankruptcy proceedings cannot be initiated in relation to a subsidiary, since responsibility for debt obligations to creditors lies with the parent company;
- marketing strategy, which is carried out by subsidiaries and affiliates, is developed in the parent organization, which acts as a guarantor of product quality, provides the opportunity to use the company’s reputation, etc.;
- the subsidiary does not have to worry about calculations and budgeting; this responsibility lies with the accounting department of the parent company;
- The subsidiary repays its expenses at the expense of the parent organization.
However, such organizational and legal relations also have their drawbacks. Among the main disadvantages characterizing the subsidiary, the following factors can be identified:
- dependence of the department on the parent company in matters of the technological nature of production and the range of manufactured products, which deprives it of the opportunity for independent growth, introduction of rational proposals or expansion of the scope of activity;
- the presence of restrictions on the use of fixed capital, since its distribution occurs according to a clearly defined plan established by the management of the main enterprise;
- if the main company goes bankrupt, the subsidiary will cease its activities, which is also possible if other dependent branches go bankrupt, since all profits will be redistributed to pay off the expenses of other subsidiaries.
Required documents
A subsidiary is a legal entity, so its creation is accompanied by the submission of a set of documents to the registration authority. The tax service at the location of the branch acts as the registrar.
Consulting a lawyer will not be an unnecessary step when preparing 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;
- a decision of the management of the main organization to create a dependent branch, formalized in accordance with the requirements of the law;
- a statement written in accordance with the established form (P11001);
- certificate from the authorities carrying out state tax control, about the absence of debts from the parent company.
What is a subsidiary - questions regarding the preparation of documents or the registration process can be eliminated by preliminary consultation with a lawyer. This can be done on our portal for free, and at any convenient time.
Attention! Due to latest changes in legislation, the legal information in this article may be out of date! Our lawyer can advise you free of charge
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 business activities it is guided by constituent documents, and bank accounts.
Download and use it:
How it will help: the instructions contain a clear procedure for checking management reporting, a detailed analysis of each indicator characterizing financial condition companies.
How it will help: establish interaction between financial services management company and subsidiaries. It sets the deadlines within which departments provide data for reports and budgets.
How it will help: The regulation describes the basic principles and methodology for the formation and approval of budgets of the group's subsidiaries. Special attention is paid to the procedure for making changes to approved plans. Using this document in practice will help to harmonize the interests of all participants in the budget process.
How does a “daughter” differ 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 regulations on the branch, which are approved by the head office.
Table. Comparison: branch and subsidiary
|
Branch |
Subsidiary |
|---|---|
|
To create a branch, you do not need to form an authorized capital. The degree of autonomy is determined by the head unit. Simplified financial settlements between the parent company and the branch. |
A subsidiary is an independent legal entity that bears all the risks associated with its own activities. The legislation does not limit the procedure for creating a subsidiary. |
“Daughter” or branch: which is more convenient and cheaper for the company
Your decision whether to open a subsidiary or whether a branch or even a separate division will suffice depends tax consequences and asset protection. We have highlighted criteria that make it easier to determine what to choose.
How to open a subsidiary company
To register a subsidiary of the main company you will need:
- Prepare statutory documents and minutes of the founders’ meeting on the appointment of a director. Have them certified by a notary for registration (five working days);
- Enter into an agreement of intent or receive information mail the landlord to confirm the address of the unit’s location (five working days);
- Register a legal entity with the funds and statistical authorities at the location of the subsidiary (five working days);
- Make a seal for the newly created company (one working day);
- Open a bank account as usual (three business days).
How to finance a subsidiary
A company can finance its subsidiary both from its own funds and from bank loans.
You can do this 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, you need to take into account that a subsidiary at the beginning of its activities 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 a subsidiary to positive, but this is a costly and time-consuming procedure, which also requires careful legal registration. In addition, the owners of many companies deliberately keep their authorized capital ratio low, thereby reducing the risk of losses.
All settlement transactions between the subsidiaries of the group are formalized only by business agreements, since in such cases they can be the basis for the transfer Money or transfer of assets.
Question: how to keep track of the money of subsidiaries?
Elena Ageeva, financial director Golder Electronics LLC
It’s time to solve the “daughter’s” problems if she:
- submits budgets to the parent company, financial plans and management reporting in arrears;
- regularly deviates from the approved cash flow budget;
- increases the loan portfolio without objective reasons;
- tightens;
- fails to meet payment deadlines for counterparties;
- makes errors in data on debts, expenses, and receipts.
Read more about what to do in such a situation in the material from .
How to manage and control a subsidiary
The management of the subsidiary is taken over by the general director, who may also be one of its co-owners. In addition, in a subsidiary company you can create your own executive agency, such as the board of directors or board of directors. Since all operational activities are managed by its own management, and strategic decisions are made by the owners, this gives more autonomy to the subsidiary. Current control it is based on regular monitoring of the implementation of approved performance targets and analysis of identified deviations. This best option, which allows, on the one hand, not to inflate the staff of management personnel, and, on the other hand, to quickly respond to the changing situation in the subsidiary.
Question: which is easier to manage – a branch or a subsidiary?
Natalia Alekseeva, Financial Director of TRIER Group of Companies, Ph.D. n.
For evaluation we will use the following parameters:
Efficiency of decision making;
The risk of abuse of power by the management of the unit;
Efficiency of movement of fixed assets and goods;
Degree of employee mobility;
Number of functions performed on site;
Degree of workload of the parent company's personnel.
We will evaluate each indicator by points (from 1 to 5). The higher the score, the easier it is to manage the unit. We then compare the aggregate score for the two scenarios (see Table 1).
Table 1. Assessment of the degree of controllability of the branch and subsidiary company
Index
Subsidiary
Note
Explanation
Rating, point
Explanation
Rating, point
Efficiency of decision making
Decisions are made in the branch within the established powers or according to the regulations of the head unit
All key decisions accepts general meeting participants
Decisions on a branch are made more quickly than on a subsidiary
Risk of abuse of authority by division management
Led by the head (chief, director) of the branch, acting on the basis of a power of attorney
Led by a director acting on the basis of the charter
The branch has a lower risk of abuse of power by officials
Efficiency of property movement
The movement of property is documented with internal invoices, since in fact the movement of objects occurs between divisions of one legal entity without transfer of ownership
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 tax audit
All transactions with subsidiaries are possible only by agreement. Significant tax disadvantage for a subsidiary - transactions are subject to tax administration (controlled transactions)
Product movement speed
Movement of goods within a group of companies without transfer of ownership. There are no taxes because the goods are not sold
Only under a purchase and sale agreement or commission with the occurrence and payment of VAT and income tax
The branch has a clear price advantage, since the additional markup in the distribution chain is less than that of the subsidiary
Efficiency of employee movement
By additional agreement to employment contract about changing jobs
Only through transfer or dismissal
Transactions for a branch follow a simplified procedure, do not require the conclusion of contracts, and are less painful for staff
Number of functions performed on site
Some auxiliary functions can be performed by the head department
The performance of all support functions in the following areas must be ensured: HR, lawyers, accounting, IT, etc., including through outsourcing. The parent division can perform part of the functions of a subsidiary, but only under an agreement
Workload of the parent company's personnel
Overall evaluation of criteria
If we evaluate seven criteria for the degree of controllability of divisions (see Table 1), we can conclude that a branch is easier to manage (30 points) than a subsidiary (22 points).
For more information on whether a subsidiary or a branch is more profitable, see the solution from .
Accounting and management accounting in a subsidiary
The subsidiary maintains accounting and tax records, and is also responsible to the tax authorities for the preparation of reliable reporting.
Video consultation: how to objectively evaluate the results of subsidiaries
How to liquidate a subsidiary
Liquidation subsidiary company 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 personnel, etc. All this requires additional financial costs. The liquidation of a “subsidiary” is considered completed, and the legal entity is considered to have ceased to exist only after notification of this has been made
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