What Is a Subsidiary Company?

A subsidiary is a corporate entity in the host country that is invested in all or part of its shares by the parent company and is established in various parts of the world in accordance with the law. The subsidiary is legally independent of the parent company and has an independent and complete corporate management organization system, so it has greater independence and flexibility in terms of operations. At the same time, the operating activities of subsidiaries must be controlled by the parent company, and they must obey the needs of the parent company's overall strategy and overall interests. But this control is indirect and positively related to the proportion of equity owned by the parent company. ^[1]

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A subsidiary is a corporate entity in the host country that is invested in all or part of its shares by the parent company and is established in various parts of the world in accordance with the law. The subsidiary is legally independent of the parent company and has an independent and complete corporate management organization system, so it has greater independence and flexibility in terms of operations. At the same time, the operating activities of subsidiaries must be controlled by the parent company, and they must obey the needs of the parent company's overall strategy and overall interests. But this control is indirect and positively related to the proportion of equity owned by the parent company. ^[1]

1. A subsidiary refers to a company in which a certain percentage or more of the shares are held by another company or are actually controlled by another company through an agreement. Although the subsidiary is controlled by the parent company, in law, the subsidiary is still an independent enterprise with the status of a legal person. It has its own name and articles of association, and conducts business activities in its own name. Its property is independent of the parent company's property, and is responsible for its own debts.

2. Subsidiaries independently undertake according to law

1. The subsidiary is under the actual control of the parent company. The so-called actual control means that the parent company has the actual decision-making power over all major matters of the subsidiary. Among them, it is particularly important to be able to determine the composition of the board of directors of the subsidiary. The parent company can appoint itself by exercising power without the consent of others

1.Application Form for Registration of Enterprise Establishment, Application Form for Registration of Enterprise Establishment, Investors List, Registration Form for Persons in Charge of Enterprise, Certificate of Business Establishment Place, etc .;

2.``Application for Pre-approval of Name '' and `` Notification of Pre-approval of Enterprise Name '';

3.``Designation (Entrustment) '';

4.Proof of appropriation by the head office;

5. The company's appointment document for the person in charge of the branch. The person in charge is not required to provide a copy of the temporary residence permit;

6.A copy of the Business License of Enterprise Legal Person stamped with the company's official seal;

7.A copy of the headquarter's articles of association (the articles of association that have been filed with the company registration authority and have been stamped with the diamond seal of the registration authority);

8.Certificate of the amount of funds allocated by the company to the branch;

9. If the business scope involves pre-examination and approval projects, the approval documents of relevant approval departments should be submitted.

Change of subsidiary to branch

To change a wholly-owned subsidiary into a branch, it can generally be handled by absorption and consolidation. If it is a non-wholly-owned subsidiary, it should first acquire a minority stake and become a wholly-owned subsidiary before absorbing and merging. The absorption and consolidation of a wholly-owned subsidiary by the parent company is equivalent to the transfer of all assets, liabilities, operations and personnel of the wholly-owned subsidiary to the parent company. The general practice is to first transfer all assets and liabilities of the subsidiary to the parent company (wherein the transfer of liabilities needs to go through the procedures of notification and announcement of creditors according to law), and then cancel the subsidiary that has become a shell. It is treated as an investment recovery in accounting. This method can maintain the continuity of the production and operation activities of the subsidiaries without being restricted by the general enterprise's "no production and operation activities unrelated to liquidation during the liquidation period". Non-wholly-owned subsidiaries also have other shareholders, so they must first acquire a minority stake and become a wholly-owned subsidiary held by a single shareholder. It can also be agreed that the minority shareholders of the subsidiary can exchange the minority equity of the subsidiary for the additional equity issued by the parent company, but the specific operation is also divided into two steps: the first step is to exchange shares, and the subsidiary becomes a wholly-owned subsidiary. The minority shareholders become shareholders of the parent company; the second step is that the parent company merges into a subsidiary that has become a wholly-owned subsidiary.

The basic process for changing a subsidiary into a branch is as follows:

1. Merged shareholders of the company make separate merger resolutions;

2. The parties to the merger separately prepare balance sheets and property lists;

3. The parties sign the Merger Agreement. The merger agreement shall include the following:

The names, domiciles and legal representatives of the parties to the merger agreement;

The name, domicile and legal representative of the merged company;

Registered capital of the combined company. When a limited company that does not have an investment and invested relationship merges, the registered capital is the sum of the registered capital of both parties. Where there is an investment relationship, the amount of capital contribution made by the investment shall be reduced.

Merger form

Inheritance plan of creditor's rights and debts of the parties to the merger agreement;

Liability for breach of contract

The way in which disputes are resolved;

Signing date and place;

Other matters that the parties to the merger agreement deem necessary.

4. Notify creditors within 10 days from the date of resolution;

5. Announce in newspapers within 30 days from the date of decision;

6. Accounting processing such as account adjustment and statement consolidation;

7. Verification of paid-in capital after the consolidated statement;

8. Apply to the registration authority for registration after 45 days from the date of the decision. Subsidiaries applied for deregistration, and group companies applied for change registration.