SUBSIDIARY COMPANY

A subsidiary is, broadly speaking, an entity that is controlled by another entity called a "parent". Such companies are generally created when the parent company has reached a high turnover and needs to expand its business.

Subsidiaries are separate entities. They are subject to separate taxation and so is their regulation. They have legal personality. In general, The following are subject to corporate income tax and must comply with the accounting and tax obligations in force in the territory in which they operate. For example, it can deduct payments made to the parent company in the form of patents, interest, royalties.....

Profit sharing with it will take the form of distribution of dividends. The repatriation of dividends is exempt from international double taxation under the Corporate Income Tax Act.

Why set up a subsidiary?

• Risk prevention. Many companies want to acquire other companies, so they set up subsidiaries, in order to avoid the risks for the parent company of negative results of the new company.
• Business development abroad. For economic and legal reasons, it is advisable to set up a subsidiary company to facilitate the parent company's activities in the host country.
• Maximising profits. Setting up subsidiaries can lead to greater tax benefits, as they are independent of the parent company in terms of taxation.

Difference between a subsidiary and a branch office

The definition of a subsidiary company should not be confused with that of a branch, as is often the case:

• A companya subsidiary has its own legal personality, while a branch is an administrative division of a company. Therefore, it has no legal personality.
• If the subsidiary company is located in a country other than that of its parent company, it must comply with the laws of that country.. On the other hand, the branch shall follow the rules established in the country in which it is located. the parent company.
• The subsidiary can develop its own activities. While the branch will carry out activities to achieve the objectives of the parent company.

A subsidiary is a a company that is owned by another company, called a parent company or controlling company. The parent company has a controlling interest in the subsidiary, which gives it control over its operations. The subsidiary has its own legal and accounting identity, but is subject to the supervision and direction of the parent company. The subsidiary may operate in the same sector as the parent company or in a different sector.

The creation of a subsidiary It may be a business strategy to expand into new markets, diversify the business or separate certain operations from the parent company. The subsidiary can be established in the same country or in another country.

For example, a US-based technology company might set up a subsidiary in Japan to expand into that market. The parent company would have control over the subsidiary and the subsidiary would have its own legal and accounting identity in Japan.

Advantages and disadvantages:

Some of the advantages of setting up a subsidiary are:

• Separation of certain operations from the parent company.
• Access to new markets and business opportunities.
• Risk diversification.
• Greater flexibility in the management of the subsidiary.

Some of the disadvantages of setting up a subsidiary are:

• Additional costs associated with setting up and running the subsidiary.
• Increased complexity in the management of the company.
• Increased risk in case the subsidiary is not successful.

In short, a subsidiary is a company that is owned by another company and is subject to the supervision and direction of the parent company. The creation of a subsidiary may be a business strategy to expand into new markets or to separate certain operations from the parent company.

How is a subsidiary set up?

The creation of a subsidiary implies the establishment of a new, independent and autonomous company under the full or partial ownership of another existing company.

The establishment process may vary according to the laws and regulations of the country where the subsidiary is to be established, but generally involves the following steps:

1. Research and analysis of the market and regulations in the country where the subsidiary is to be established.
2. Creation of a business plan for the subsidiary, including objectives, strategies, resource requirements and financial projections.
3. Choice of a legal structure and registration of the subsidiary as an independent entity.
4. Obtaining permits and licences necessary for the operation of the subsidiary in the country of destination.
5. Recruitment of staff, if necessary, and establishment of a headquarters or premises for the subsidiary.
6. Start-up of the subsidiary and constant monitoring of its performance and compliance with local laws and regulations.

It is important to bear in mind that the process of setting up a subsidiary can be complex and costly, and requires a good business plan and adequate resources to ensure the success of the new company.

Advantages and disadvantages:

The advantages of setting up a subsidiary as an entrepreneur are:

1. Increased market presence: by creating a subsidiary, a physical presence is established in a new geographic location, which can increase the company's visibility and reach.
2. Increased access to resources: A subsidiary may have access to local resources, such as talent, suppliers and distribution networks, which can be beneficial to the growth and development of the company.
3. Legal protection: by creating a subsidiary, a separate legal entity is established, which can provide protection against potential risks and liabilities.
4. Risk diversification: By having subsidiaries in multiple geographic locations, risk can be diversified and dependence on a single market can be reduced.

On the other hand, some disadvantages of setting up a subsidiary may be:

1. High upfront costs: Establishing a subsidiary may require a significant investment of financial and human resources.
2. Increased legal and fiscal complexity: setting up a subsidiary involves complying with local laws and regulations in the location of the subsidiary, which can be complex and costly.
3. Increased administrative complexity: Managing multiple legal entities can be complex and require additional resources.
4. Coordination risks: Coordination between parent company and subsidiary can be challenging and may require careful communication and planning.

In general, creating a subsidiary can be an effective strategy to expand and diversify an entrepreneur's business, but it is important to carefully assess the potential costs and benefits before making a decision.

Examples of companies that have established subsidiaries in other countries include:

1. Coca-Cola: has subsidiaries around the world, including Coca-Cola FEMSA in Mexico and Latin America, and Coca-Cola Hellenic Bottling Company in Europe.
2. McDonald's: has subsidiaries around the world, which operate its restaurants in the countries where they are located. For example, McDonald's Europe is managed by its subsidiary McDonald's Europe BV.
3. Apple: has subsidiaries around the world, which are responsible for the sale and distribution of its products in the countries where they operate. For example, Apple Europe Limited is the European subsidiary of Apple Inc.
4. Toyota: has subsidiaries around the world, which are responsible for the manufacture and sale of its vehicles in the countries where they operate. For example, Toyota Motor Europe is the European subsidiary of Toyota Motor Corporation.
5. Nestlé: has subsidiaries around the world, which are responsible for the production and distribution of its products in the countries where they operate. For example, Nestlé España SA is the Spanish subsidiary of Nestlé SA.

These are just a few examples of companies that have established subsidiaries in other countries to expand their global presence and take advantage of market opportunities in different regions of the world.