A subsidiary company is just a branch or something more?

A subsidiary company is a legal entity, the activity of which is influenced by another company, the so-called parent company. It's simple: the "daughter" can not independently take the majority of decisions and without the permission of the superior company can not dispose of its assets or perform other actions determined by the agreements between them. Accordingly, they share the responsibility for the decisions made - the head office is always in charge of the subsidiary. However, there is a certain financial nuance: the daughter does not answer for the debts and obligations of the "parent" firm.

Decisions on current activities are made by the executive bodies of the subsidiary structure, but the list of transactions with their maximum amounts that can be made only from the filing of the board of directors of the parent company must be stipulated in the statutory documents.

Features of managing subsidiaries

Management of subsidiaries does not necessarily take place only if the parent firm owns a controlling interest. It is sufficient to determine the relationship in several provisions made to the charter of the subsidiary company, or specifically to draw up a contract with the designation of the boundaries of influence. However, often a subsidiary is also an affiliated company, as the parent company holds more than 20% of the shares and charter capital of the subsidiary.

The advantages of creating a subsidiary

Maternal and subsidiary company in one bundle is an opportunity to solve several tasks facing the enterprise, including:

• First: a subsidiary company is a successful development of foreign economic activity - for which the "daughter" is created in offshore zones for preferential taxation in transactions with foreign partners.
• Secondly: a subsidiary company is an increase in the stability of the parent structure - all risky transactions are transferred to the management of the "daughter", and the main department of the company does not suffer damage for those transactions that the dependent company has the right to conduct independently.
• Thirdly: it is an improvement in the organization of current activities. The subsidiary structure may be entrusted with routine duties or special functions for the implementation of a separate project, or activities requiring regular licensing and accreditation.
• Fourthly: the subsidiary company is the growth of competitiveness due to the allocation of profile directions and the specialization of the "daughter" in specific types of activity.
• And the last advantage: the optimization of financial flows - the creation, with the help of subsidiaries, of additional profit centers, the receipt of investment inflows, intra-company redistribution of incomes and costs.

Subsidiary companies: related bonds or dependence?

The management of the subsidiary company is optimal for those holdings that are diversified, and which are vertically integrated structures. This approach gives an opportunity to respond quickly to changes in the situation in different sectors and regions. But for scaling monoactivity, the creation of a branch network is more appropriate, and not the opening of subsidiaries.