After gaining independence, domestic large organizations relieved business of risks by branching out. A subsidiary is an independent entity, which is managed by the main company due to its controlling stake. 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 for the purpose of promoting promising directions 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 international standards, 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. V joint-stock companies it is important to have the 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, the direct object of investment will be new organization. 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 the subsidiary is 50% or more owned by the parent (with a controlling stake), then most of 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). V management company an approximately identical management structure was drawn up, where there is a direct boss, director, a team of lawyers, managers. The main thing in this case is general manager 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:
- Statement by the CEO or decision of the board of directors.
- Letter from the bank about opening a new account.
- The drafted Charter of the enterprise, which prescribes subsidiary liability.
- A new legal address is indicated (a certificate of office rental or other is issued).
- Information about the founders.
- 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 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 - managerial function are 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 often happens in international corporations.
Decision-making power
All key decisions cannot be made on your own. For this it is necessary final word 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 a 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;
- to negative financial results the dependent company was brought by the main office, 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. Material liability on debts may occur 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
Independent is financial activities, 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 company 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 Therefore, all reporting is prepared 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 carried out 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 bound only by clauses in the charter and by the founders, when controlling stake shares are owned by the parent 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 the consolidated financial statements Special attention give the capital of two independent firms, their relation, communication and activity.
The issue of consolidated reporting is clearly spelled out in international standards, standards - IAS 27, IFRS 3, 28 and 31. System international standards financial statements describes the need to indicate debit, credit, assets and other financial details. V Russian Federation this topic is disclosed by the Orders of the Government of 1998-1999.
tax incentives
On the 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.
When opening branches or subsidiaries, it is necessary to take into account their important differences. For example, a subsidiary is a legal entity that can, on its own behalf, acquire and exercise property and personal non-property rights, bear obligations, be a plaintiff and defendant in court. A branch is not a legal entity. What to give preference to - a branch structure or a network of subsidiaries?
Large companies were formed spontaneously - they bought the enterprises they liked and sold the "objectionable ones". After the composition of the assets was already determined, structural adjustments began, which are still going on. And if the answer to the question about the consolidation of various assets into subgroups depends entirely on the specifics of a particular holding, then how is the issue of the legal form of geographically distributed divisions resolved? What to choose - a branch structure or a network of subsidiaries?
There is no single correct answer to this question. Much will depend on strategic business goals , types of activities implemented by the holding, and other equally important factors. As a rule, the branch network is used by groups that have one key area of activity, the rest prefer to create their divisions in the form of subsidiaries. In addition, the second option is safer for business in general.
Russian holdings decide for themselves the question in different ways: should they use subsidiaries or branches in the structure? General rule, which can be distinguished from the analysis of practice, will sound as follows: vertically integrated holdings and diversified corporations give preference to "subsidiaries", mono-holdings that have one key type of activity create branch networks.
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What is a subsidiary
An example is the experience of MOESK, which provides electricity transmission services. It has several branches, each of which already reflects its specialization in its name: Moscow Cable Networks, Central Electric Networks, etc. But in addition to branches, MOESK also has subsidiaries - these are companies whose activities are more of a supportive character. Similarly, a large commercial network. She transferred most of her stores from the category of "daughters" to branches.
Expert Experience
Anatoly Ryzhov, specialist in the treasury department of a large retail chain
Until February 2008, each store was registered as a separate legal entity (subsidiary). In order to use such functions of the bank as collection, payment for non-cash services (acquiring, consumer lending), to make payments between branches and the managing company, we had to open two or three current accounts for each store. Considering that our company had about 400 such subsidiaries, more than a thousand current accounts were opened and serviced throughout the group. Moreover, each of them had its own database in the accounting system. All this was the cause of many various errors and painstaking work on their analysis and elimination. The worst thing about the current situation was that it was simply unrealistic to control mutual settlements on all accounts. To understand the scale of the problem, I will say that on average we had to register about 500-600 outgoing and more than 10,000 incoming payments per day.
But there are also such enterprises that, even with one pronounced type of activity, prefer the subsidiary structure of the branch network.
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Features of creating and managing a subsidiary
Holdings do not have any particular problems when opening branches or subsidiaries, however, there are important differences that must be taken into account when determining what the group structure will be.
The procedure for creating branches by joint-stock companies or limited liability companies is determined federal laws: "On Joint Stock Companies" dated December 26, 1995 No. 208-FZ and "On Limited Liability Companies" dated February 8, 1998 No. 14-FZ. The fundamental difference is that in order to open branches, an LLC requires a decision of the general meeting of participants (at least two-thirds of the votes), and in joint-stock companies, amendments to the charter regarding the creation of branches, their opening or liquidation lies within the competence of the board of directors. By analogy, decisions are made on the creation (participation) in subsidiaries, there is no fundamental difference.
An important point is the management of a new structural unit. The choice in favor of one or another option will largely be dictated by how centralized management is in the group.
Branches are headed by a manager appointed by the holding, who acts on the basis of a power of attorney and a branch regulation (Article 185 of the Civil Code of the Russian Federation). And there are no problems with control. In the position or in the power of attorney, one can clearly define the powers of his head, up to the types and size of transactions that he has the right to make. And also it will not be superfluous to prescribe the procedure for coordination with the relevant services of the holding.
Things are different with the holding structure, which consists of subsidiaries, each of which has its own executive bodies, which means the ability to make decisions independently. holding to receive necessary control over its "daughter", it will be necessary to indicate in its charter what types and amounts of transactions must be carried out with the approval of the board of directors or the general meeting (Article 52 of the Civil Code of the Russian Federation).
In other words, the management company of a group consisting of subsidiaries is more likely to interfere in the strategically important decisions of its wards, but not in operational management. For many holdings, this is an ideal option, allowing not to inflate the staff of managers, as well as quickly respond to the changing situation in the regions.
Expert opinion
Tatiana Lvova
Among the advantages of the branch variant of the organization of the company is that the branches are in the sphere of direct action of the administrative mechanisms of the parent company. At the same time, when choosing the organizational and legal form of a subsidiary, in many cases preference is given to creating a subsidiary with the right of a legal entity, since it is a full-fledged subject of economic relations.
A subsidiary is a firm that may have greater responsibility and independence, and its functionality, as a registered independent legal entity, is much higher. So, it (even in the form of a limited liability company) is able to issue securities, which is not available to a branch.
But with the "branch option" there is no holding company with its advantages, which consist, in particular, in the separation of property and liability of the main and subsidiary business companies. The organization bears full property liability for civil-legal obligations of the branch.
Tax aspect
The choice in favor of a branch structure or the creation of subsidiaries is seriously influenced by the issues of formation and tax reporting, as well as the risks of claims from the tax office. Let's dwell on this in more detail.
Let's imagine a very real situation: tax office requested a certain set of documents relating to the work of the holding division, and it must be provided within ten days. If the unit is created in the form of a branch, then, to solve the problem, well-established methods of transferring data and original documents will be required. Despite the development information technologies, the problem may not be trivial. In principle, such difficulties cannot arise with a subsidiary, since it acts as an independent legal entity and all documentation is kept at its location.
Moreover, the branch structure will require additional efforts from the holding to maintain tax records. So, in relation to income tax, you will have to calculate the amount relating to each branch (Article 288 of the Tax Code of the Russian Federation), and the declaration must be submitted not only at the location of the company, but also where they are located (Article 289 of the Tax Code of the Russian Federation). In addition, the location of the units will have to pay taxes on movable and immovable property belonging to them. And in addition to everything, the branch structure involves the consolidation of all business operations of divisions in the financial statements, which provides a considerable burden on the accounting department.
Expert opinion
Artem Bersenev
Unlike a branch, the establishment of a subsidiary, that is, a separate legal entity, can significantly reduce the costs associated with maintaining accounting and tax records in the parent organization in the branch form, since such costs will be borne by it itself. This means that the responsibility for the reliable formation of accounting and tax reporting rests with him.
In addition, it should be borne in mind that the presence of branches can lead to an increase in the timing of the field tax audit head organization. Also, its liquidation can also initiate an on-site tax audit of the parent organization. In turn, for subsidiaries such rules of field tax audits do not apply.
At the same time, holdings consisting of subsidiaries also have a number of disadvantages. One of the favorite topics of the tax authorities is intracompany transfer pricing , which is often used by groups, including for the redistribution of profits between their member enterprises. It is clear that this problem does not concern the branch structure, but is the exclusive prerogative of subsidiaries. Moreover, the loss received by one of the "daughters" of the holding cannot be used to reduce the taxable base of another "daughter" or the management company.
Expert opinion
Artem Bersenev, tax consultant of the department of tax law and consulting LLC "Intelis-Audit", Ph.D. n.
As a rule, separate cost estimates for their maintenance are compiled for branches for a certain period of time (most often for one calendar year, broken down by quarters (by months)). At the end of the established periods of time, the branches form the appropriate reports to the parent organization. At the same time, the fact has become quite common when the costs of maintaining it exceed the income generated by it, which leads to the need to eliminate them.
For subsidiaries, the most common form of management reporting is budgeting and performance reports. Moreover, if such a company is unprofitable, then the liquidation of a separate legal entity for the parent organization is more painless.
Other people's obligations
The most serious drawback of the branch structure in a crisis is that branches act on behalf of the society that created them. In other words, the holding is fully responsible for their actions: it pays fines and compensates for losses. Moreover, if the tax inspectorate seizes the holding's accounts because of one branch, this can paralyze all of its work.
It's easier with subsidiaries. These are legal entities within the holding, which are independently liable for their obligations. But it must be taken into account that the parent company in case of problems with the "daughter" can be held jointly and severally or subsidiaryly liable. In the first case, the parent company gave instructions to the subsidiary that were binding. In the second, it went bankrupt, following the direct instructions of the holding's management company, and now the "daughter" does not have enough of its own assets to pay off all obligations. Their shortage will most likely have to be compensated by the management company of the holding at the expense of its own property or Money.
Expert opinion
Tatiana Lvova, lawyer, consultant of the INTELIS group of companies
The current legislation enshrines the cases of assigning responsibility for the transactions of a subsidiary to the parent organization:
the head organization, which has the right to give instructions to the subsidiary, including under an agreement with it, instructions that are obligatory for it, is jointly and severally liable with it for transactions concluded by the latter in pursuance of such instructions. In paragraph 31 of the Resolution of the Plenums of the Supreme Court of the Russian Federation and the Supreme Arbitration Court of the Russian Federation dated July 1, 1996 No. 6/8, it is noted that both legal entities are involved in such cases as co-defendants in the manner prescribed by the procedural legislation;
the parent organization bears subsidiary liability for the debts of the subsidiary in the event of insolvency (bankruptcy) of the latter, which arose through the fault of the parent organization.It should also be noted here that the legislation establishes the right of participants (shareholders) of a subsidiary to demand compensation from the parent organization for losses caused through its fault to the subsidiary, unless otherwise provided by laws on business companies.
table. Key differences between branches and subsidiaries
| Branch | Subsidiary |
|
The branch is not a legal entity, and therefore, a participant in relations regulated by civil law, that is, the branch does not acquire property and personal non-property rights, is not an independent party to the contract, does not bear independent property liability, cannot act as a plaintiff and defendant in court. |
A subsidiary is a legal entity, that is, it owns, manages or manages separate property and is liable for its obligations with this property, can acquire and exercise property and personal non-property rights on its own behalf, incur obligations, be a plaintiff and defendant in court . |
| The location of the branch does not coincide with the place of registration of the parent organization (read also about new rules for changing the legal address for organizations ). | The activities of the subsidiary, as well as the parent organization, are managed by the bodies of the subsidiary, acting in accordance with the law, other legal acts and founding documents. The task of the governing bodies of the parent organization in this regard is to ensure the passage of their teams through the subsidiary, that is, to develop and apply optimal corporate control tools. |
| The head of the branch acts on the basis of a power of attorney issued by the parent organization. | Operates on the basis of the charter or the memorandum of association and the charter, depending on the chosen organizational and legal form. |
|
Operates on the basis of the position approved by the parent organization. |
Has separate property. Separation of property is inherent only to a legal entity. |
| It has property assigned to it, which is not separate. Due to the fact that the property of the branch is not separate and belongs to the parent organization, it can be levied for the debts of the parent organization, and the liability will not be subsidiary. And vice versa, for obligations related to the activities of the branch, the parent organization bears full property responsibility. | Not responsible for the debts of the parent organization. Therefore, risky economic transactions may be entered into on behalf of subsidiaries. |
| Carries out all or part of the functions of the parent organization, including the functions of representation. | Can engage in any activities not prohibited by law. |
| Information about the branch must be indicated in the constituent documents of the legal entity. |
VIDEO: How to objectively evaluate the results of subsidiaries
Inconsistent reporting of subsidiaries, different performance indicators - are you familiar with such problems? If so, it's time to revise the methodology and procedure for evaluating the performance of subsidiaries. How to proceed, look at the video.
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. Own company 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 from those assets separately.
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 several properties can 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 point of view accounting the subsidiary is a separate company, so it will keep its own financial reports, bank accounts, assets and liabilities. Any transactions between a parent company and a subsidiary must be registered.
Many companies present a consolidated financial statements(balance sheet and income statement) to shareholders, showing that the parent company and all subsidiaries are merged.
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 ecommerce partnerships are contractual relationships between two separate companies for the sale of 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 status trade name DBA 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 given subject market was regulated by art. 105 of the Civil Code of the Russian Federation. Changes were made in 2014. Today legal status 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 general view. For example, he did not approve minimum size the share that the parent company must have in the capital of the 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 entity that has equity 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 House necessary documents(certificate from the bank on the state of the account, characteristic on 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 his economic activity it is guided by constituent documents, has own balance 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 financial condition companies.
What will help: establish interaction between financial services 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
| To create a branch, you do not need to form authorized capital. The degree of autonomy is established by the head unit. Simplified financial calculations 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
From your decision whether to open a subsidiary or a branch is enough, or even separate subdivision, depend tax implications 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:
- 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);
- 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);
- Register a legal entity in the funds and statistical bodies at the location of the subsidiary (five working days);
- Make a seal of the newly created company (one working day);
- Open a bank account in the usual way (three business 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 Golder Electronics LLC
It's time to solve the problems of the "daughter" if she:
- submits budgets to the parent company, financial plans and management reporting with delays;
- 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 agency such as the 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 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
| 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 general meeting 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 | By additional agreement to employment contract about 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.
There are many cases when an enterprise has developed to such an extent that it needs to either expand or, conversely, increase its profits. And most often the management of such an enterprise stops at the option of creating one or more subsidiaries.
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Subsidiary- this is a legal entity created by another enterprise or founder with the transfer of a share of its property fund to it. The founder of the created enterprise approves its charter, appoints the head. In addition, the founder has many other rights of the owner, provided for by the current legislation in relation to the subsidiary.
The main purpose of establishing subsidiaries- this is the distribution of internal resources of the organization and the allocation of the most promising areas to separate specialized firms. Thus, the competitiveness of the entire company as a whole increases. In addition, often a subsidiary is engaged in extremely tedious routine work, and transfer prices and transactions can reduce financial and tax costs.
If a subsidiary is established abroad, then this allows the development of the foreign economic activity of the entire company, mainly due to customs and tax benefits. When several subsidiaries are created, a holding is formed, and each so-called "daughter" has the right to independently choose a taxation regime for itself, conclude contracts and much more.
Benefits of opening
- Firstly, the creation of a subsidiary company is an ideal option for the development foreign economic activity. Therefore, the creation of a "daughter" in an offshore zone will save with the help of tax incentives when concluding transactions with foreign counterparties.
- Secondly, the creation of a subsidiary company will increase the stability of the parent company. All risky operations can be transferred to its activities and main company takes no responsibility for them.
- Thirdly The “daughter” can be entrusted with daily routine work or assigned certain functions for the implementation of a specific project.
- Fourth, the subsidiary creates competition through a narrow special focus of the company.
- Fifth a subsidiary company will provide an opportunity to increase financial flows, investments and much more.
How to open?
In order to open a subsidiary company, you must:
- Choose in which direction the “daughter” will work.
- Draw up the charter of such a company, indicating all the important conditions. In the event that there are several founders, then one should draw up memorandum of association, in which it is necessary to pay attention to the clause on the distribution of shares between each of them.
- Draw up the minutes of the meeting of the founders on the creation of a subsidiary. In this case, the protocol must be signed by the chairman of the meeting, the secretary of the founding council or only one founder.
- Assign a legal address to the company. A document is drawn up about this by the director of the main company.
- A legal entity must be registered. In addition, the company must have its own current account, stamp, details.
- Determine and appoint a chief accountant, director of a subsidiary. In order to record the transfer of a share of finance from the parent company, an appropriate act must be drawn up and signed by the directors of both companies and the chief accountant.
- The main enterprise should not be burdened with budget debts, including taxes. In confirmation of the absence of such debts in the registration chamber, a letter should be requested, which indicates that the company has no debts.
It is also necessary to draw up an application in the form p11001 with the obligatory indication:
- organizational and legal form;
- data about;
- legal address;
- the name of the subsidiary;
- information about the founders and the sole executive body;
Completely completed form with the required documents, as well as a certificate of state registration of the main company and copies of the passports of the chief accountant and director of the subsidiary, to be submitted to the territorial body of the tax service. After registration, a subsidiary company can carry out its activities in full.
Comparison with branch and representative office
Branch is an independent division of a particular limited liability company. It is necessarily located outside the location of the main company.
The branch is not a separate legal entity, it performs the functions of the main company or part of them. In addition, such a unit operates solely on the basis of approved regulations.
The branch does not have its own property. The head of the subdivision is appointed and dismissed by the main enterprise and acts only by proxy.
It does not act independently, but on behalf of the company, and it, in turn, is responsible for the actions of the branch. The charter of the enterprise indicates all the data on the existing branches.
Representation as well as a branch is a division of a limited liability company that is not located on the territory of the company. Unlike a branch, it performs the function of representing and protecting the interests of society. Otherwise, everything is the same with the branch.
The main differences between a subsidiary and a branch and a representative office:
- A subsidiary is a separate legal entity. It is created like any ordinary limited liability company. It has its own authorized capital, it operates on the basis of the charter, and bears responsibility independently.
- Subsidiary may engage in any activity which is written in the statute. The branch operates in the same directions as the company, and the representative office is created to represent and protect the interests of the company.
- Subsidiary acts only on its own behalf, and a branch and representative office from the main enterprise.
Opening a subsidiary is much more profitable than opening a branch or representative office. It is independent in making any decisions, is responsible for its obligations independently, and in the case of actions by order of the main company, bears joint and several liability with it.
The influence of the parent company on the subsidiary
The parent company is not required to hold a controlling interest in order to control a subsidiary. They may operate on a contractual or statutory basis. For example, one firm may transfer to another firm the rights to use any production technologies in the manufacture of a product, and the contract indicates that the subsidiary is obliged to coordinate the sale of goods with the controlling firm.
Responsibility of the parent company
The established subsidiary is an independent entity. She has her own capital, as well as property. It does not bear any responsibility for the resulting debts of the main organization, and the parent company is not liable for the debts of the subsidiary.
But the legislation provides for two cases of liability of the parent company for the debts and claims of the subsidiary:
- In the event of a transaction involving a subsidiary under the instructions of the parent organization. In this case, such an order must be documented. In this case, both entities bear in relation to common obligations. That is, in the event of adverse consequences, any of the firms is obliged to repay the resulting debt to creditors.
- If a subsidiary has become bankrupt as a result of administrative actions of the parent company. In such a situation, vicarious liability arises. This means that if the subsidiary does not have enough resources to repay the debt, the parent company repays the rest.
And now all of the above can be considered with an example. Suppose that there is a certain company "Crystal", which is located in Yakutsk. It became quite successful and at the general meeting of the founders a decision was made to expand the company.
The question of whether to open a subsidiary or a branch network remains unresolved? Often they stop at a subsidiary, since the branch requires constant monitoring by the parent company. In a subsidiary, you only need to appoint a director and he himself will manage and be responsible for all the actions of the company. The result is an independent company. And you only need to send financial statements to the parent company and agree on some costs.
Usually, when a subsidiary is opened, a change is made to the name of the parent company. So, the Kristall company opens a subsidiary in Moscow. The name of the subsidiary will be with the addition of several letters, for example, DK "Crystal".
The parent company releases itself from the control and guidance of the firm's current records. The head of the subsidiary is responsible to the management of the parent company. This expands the competitiveness, profitability of the parent company, but at the same time makes life easier for yourself in the management of a subsidiary.
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, 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. |
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". |
"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.
How to open a subsidiary
To register a "daughter" of the main company, you will need:
- 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);
- 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);
- Register a legal entity in the funds and statistical bodies at the location of the subsidiary (five working days);
- Make a seal of the newly created company (one working day);
- Open a bank account in the usual way (three business 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 positive, 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.
Question: how to keep track of the money of subsidiaries?
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;
- tightens;
- 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. from .
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.
Question: which is easier to manage - a branch or a 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;
Efficiency of movement of fixed assets and goods;
The degree of mobility of employees;
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
Subsidiary
Note
Explanation
Evaluation, score
Explanation
Evaluation, score
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 are made by the general meeting of participants
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
Headed by a director acting on the basis of the charter
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
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
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
Only under a sales contract or commission with the occurrence and payment of VAT and income tax
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
Only through transfer or dismissal
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
The performance of all auxiliary functions in the areas of: HR, lawyers, accounting, IT, etc. should be ensured, including through outsourcing. The parent unit can perform part of the functions of a subsidiary, but only under an agreement
The degree of workload of the staff of the parent company
Overall assessment criteria
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 what is more profitable for a subsidiary or a branch, see the decision. from .
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.
Video consultation: how to objectively evaluate the results of subsidiaries
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 the filing of this
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