What is a subsidiary? Procedures for establishing a subsidiary according to law

A subsidiary is a form of business that depends on the parent company for capital ownership, control and decision-making on important operational issues. To establish a subsidiary, the parent company needs to comply with legal regulations. Through the article below, Long Phan will provide customers with detailed information about subsidiaries and procedures for establishing subsidiaries according to current regulations.

Regulations on parent company – subsidiary company

Parent companies and subsidiaries are regulated in Article 195 of the Law on Enterprise 2020, including conditions determining the relationship between the parent company and its subsidiaries as follows:

• The parent company owns more than 50% of the charter capital or total common shares of the subsidiary: This is the most important criterion to determine ownership and control.
• The parent company has the right to decide to appoint the majority or all members of the Board of Directors, Director or General Director of the subsidiary: This right allows the parent company to operate and direct the subsidiary.
• The parent company has the right to decide to amend and supplement the Charter of the subsidiary: This right helps the parent company control the legal activities of the subsidiary.

In addition, subsidiaries are not allowed to invest in the parent company and are not allowed to own shares or contribute capital to other subsidiaries of the same parent company (according to Clause 2, Article 195 of the Law on Enterprises 2020).

The role of subsidiaries in business operations

Subsidiaries play an important role in the parent company’s business activities, specifically:

• Expanding markets and growing revenue: The parent company can use subsidiaries to expand into new markets without facing too many risks.
• Specialized management: Subsidiaries can specialize in different fields, helping the parent company manage more effectively.
• Sharing resources and minimizing risks: Subsidiaries can operate financially independently, helping the parent company reduce risks and optimize resources.

Procedures for establishing a subsidiary

To establish a subsidiary, the parent company needs to comply with the following legal procedures:

Application for registration of establishment of a subsidiary

• Decision of the owner, chairman of the board of members or board of directors on appointing a representative to contribute capital and manage the subsidiary.
• Copy of business registration certificate of parent company.
• Copy of ID card/CCCD/Passport of the representative appointed by the parent company.

In addition, the parent company needs to prepare other documents as required by the business registration agency.

Procedures for establishing a subsidiary

Step 1: Submit application

• Applications can be submitted directly to the Business Registration Office.
• Or register online at the National Information Portal on business registration.

Step 2: Receive and process documents: The business registration agency will check and process the application within 3 working days.

Step 3: Get results: After the application is approved, the parent company will receive a Business Registration Certificate for the subsidiary.

>>> See more: The most economical cost of establishing a company in 2024.

Some limitations on the powers of subsidiaries

Subsidiaries must comply with a number of restrictions on authority, specifically:

• Subsidiaries are not allowed to invest in the parent company: Subsidiaries are not allowed to contribute capital or buy shares in the parent company, avoiding cross-ownership.
• No cross-ownership between subsidiaries: Subsidiaries cannot contribute capital or buy shares from each other.
• Subsidiaries of a state-owned parent company are not allowed to contribute capital to other enterprises if the parent company owns at least 65% of the charter capital.

CSPL: Clauses 2 and 3 of the Law on Enterprise 2020.

Consulting on establishing subsidiaries according to the latest regulations

To ensure the establishment of a subsidiary fully complies with legal regulations, the parent company needs to consult with consulting experts. With a team of staff with many years of experience, Long Phan provides services including:

• Consulting on regulations on the relationship between the parent company and its subsidiaries.
• Consulting on procedures and procedures for registering to establish a subsidiary.
• Consulting on the rights and obligations of the parent company towards its subsidiaries.
• Support in preparing and drafting documents to establish a subsidiary.
• Representing customers to submit applications and monitor application processing.
• Support the parent company in handling disputes that may arise during the establishment of a subsidiary.
• Advise on regulations related to the transfer of shares or acquisition of subsidiaries in case of necessity.

Establishing a subsidiary helps the parent company expand its operations and manage its subsidiaries effectively. However, the parent company needs to comply with legal regulations to ensure the legal establishment of a subsidiary and avoid risks. Customers can contact us via the hotline 0906735386 to receive in-depth advice and support procedures for establishing a subsidiary quickly, and accurately.