Why set up a wholly-owned subsidiary? After the establishment of the company, people are more concerned about these things. People who are usually concerned about the commercial industry know that many companies have set up multiple subsidiaries, which are usually owned or controlled by the parent company 100%. The following is why a wholly-owned subsidiary should be established.
Why set up a wholly-owned subsidiary 1? In international business, it means that the parent company invests all or part of its shares in the world according to law and establishes a legal person enterprise in the host country. Generally speaking, subsidiaries are legally independent from the parent company and have a complete operating system, but they are controlled by the parent company.
Many companies set up subsidiaries for the following two reasons:
First, the business scope of subsidiaries and parent companies is different. For example, if a real estate company wants to develop film and television business and join the film and television industry, it must change its business scope and even modify its existing articles of association. A company has two management agencies, which is prone to management confusion. It needs to set up a subsidiary to take charge of film and television business.
Second, enjoy industry welfare and avoid legal risks. Every region will have its own industrial policy, and all companies will use this to increase their profits.
In addition, in the event of a business crisis of a subsidiary, the parent company does not have to repay the debts of the subsidiary, nor does it have to waste too many of its own management institutions and talents.
Why set up a wholly-owned subsidiary? 2. Advantages of wholly-owned subsidiaries
Entering a country's market as a wholly-owned subsidiary has two main advantages:
First of all, managers can completely control the daily business activities of subsidiaries in the target market and ensure that valuable technologies, processes and other intangible assets remain in the subsidiaries. This way of complete control can also reduce the opportunities for other competitors to gain competitive advantages.
This is especially important when the company takes technology as its competitive advantage. In addition, the manager can maintain complete control over the output and price of the subsidiary. Different from authorization and franchising, all profits created by subsidiaries must also be handed over to the parent company.
Second, if the company wants to coordinate the activities of all its subsidiaries, wholly-owned subsidiaries will be a very good entry mode. From the perspective of global strategy, companies can regard each country's market as a part of the interconnected global market. Therefore, having complete control over wholly-owned subsidiaries is more attractive to company managers who pursue global strategy.
Second, the shortcomings of wholly-owned subsidiaries
The wholly-owned subsidiary also has two important defects:
First, this method may cost a lot of money, and companies must raise funds internally or in the financial market to obtain funds. However, for small and medium-sized enterprises, it is often difficult to obtain sufficient funds.
Generally speaking, only large enterprises have the ability to establish international wholly-owned subsidiaries. However, citizens of a country who have settled overseas may find that their unique knowledge and ability are their important advantages (international subsidiaries established overseas are in great need of such talents).
Second, because the establishment of a wholly-owned subsidiary needs to occupy a lot of resources of the company, the risks faced by the company may be high. One of the sources of risk is the political or social uncertainty or instability of the target market.
This kind of risk may threaten the company's material property and personal safety when it is serious. The owner of a wholly-owned subsidiary may also bear all the risks brought by consumers refusing to buy the company's products. Of course, as long as we fully understand the consumers in the target market before entering the target market, the parent company can reduce this risk.
Why set up a wholly-owned subsidiary 3. What do you mean by wholly-owned subsidiary?
A wholly-owned subsidiary refers to a company with only one corporate shareholders. The wholly-owned subsidiary is a special case in the process of reform and opening up in China and China. As a wholly-owned subsidiary, a wholly-owned subsidiary is actually a "one-man company".
It is allowed to set up a natural person shareholder or a limited liability company among legal person shareholders, that is, a one-person limited liability company. Company B has only one shareholder of Company A, that is, Company A owns 0/00% equity of Company B, so Company B is a wholly-owned subsidiary of Company A. ..
For wholly-owned subsidiaries, the Company Law has special provisions:
1. The minimum registered capital is RMB100000 yuan. Shareholders shall pay in full the capital contribution stipulated in the Articles of Association.
2. If the shareholders are natural persons, they cannot invest in the establishment of a new wholly-owned subsidiary.
3. The sole proprietorship of a natural person or a legal person shall be indicated in the company registration and in the company business license.
4. At the end of each fiscal year, financial and accounting reports shall be prepared and audited by accounting firms.
5. If shareholders cannot prove that the company's property is independent of their own property, they shall be jointly and severally liable for the company's debts.
2. What's the difference between a subsidiary and a branch?
1, established in different ways.
The subsidiary is established by the shareholders of the company in accordance with the provisions of the Company Law, and meets the requirements of the Company Law on the conditions for the establishment of the company and the mode of capital contribution. The head office applies to the local industrial and commercial authorities outside its domicile for the establishment of a branch office, which belongs to the establishment of a branch office.
2. Different legal status
A subsidiary is an independent legal person with legal personality, independent name, articles of association and organization, and engages in business activities in its own name. Branches have no legal personality, independent name, articles of association and organization, and engage in business activities in the name of branches of the head office.
3. Different control methods
Generally, the parent company does not directly control its subsidiaries, but affects its production and operation activities by appointing and dismissing board members and making investment decisions. The personnel, business and property of the branch company are directly controlled by the head office and engaged in business activities within the business scope of the head office.
There are different ways to assume debt responsibility.
As an independent legal person, a subsidiary is liable for its debts with all its assets. As the branch does not have its own independent property, it is financially unified with the head office. Therefore, the head office is responsible for paying off its operating debts, that is, the head office is responsible for the debts in the operating activities of the branch company to the extent of all its property.
5. Obtain different business licenses.
The subsidiary receives the Business License of Enterprise as a Legal Person with the name of the legal representative. The branch company obtains a business license with the words "person in charge" on it.
Third, what is the relationship between parent company and subsidiary company?
The first is the control relationship.
Although the subsidiary is an independent legal person, it can engage in various business activities within its own business scope, but its autonomy is limited.
The parent company plays a leading role in the shareholders' meeting of the subsidiary, and the management policy and investment plan of the subsidiary are actually decided by the parent company.
The second is the investment relationship.
The parent company owns subsidiaries, which are basically realized through investment, except for a few controlled by agreement.
The investment relationship between parent company and subsidiary company can be divided into two situations.
The third is financial relations.
The fourth is the management relationship.
Although the subsidiary is an independent legal person, the parent company and the subsidiary have their own independent rights in production and operation, but in fact it is the relationship between management and being managed.
We can make use of the relationship between the parent company and its subsidiaries, especially the control relationship between them, such as manipulating the transfer pricing of subsidiaries, avoiding taxes, confronting public policies or evading their legal responsibilities.