Subsidiary - Term Overview

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A subsidiary is a company that is controlled by another. For that reason, it's included in the category of limited liability company (LLC). Likewise, the firm that takes the economic helm is called the parent company.

The management or control is carried out through the shareholding package owned by the parent. In other words, its shares give it the necessary votes to determine the composition of the subsidiary's administrative body and thus be able to exercise control.

This strategy gives rise to the commonly assumed idea that achieving 50% plus one of the shareholders is enough to create a subsidiary. However, there are other variants where business control can occur by applying much more complex business dynamics.

Ultimately, the subsidiary company depends on the parent company. However, this relationship can vary in degree. Thus, the link between both companies -the subsidiary and the parent- can go as far as absolute control, where the subsidiary limits itself to recording the decisions and operations that are arranged in the parent (a situation also defined in English as wholly owned - full property).

However, in other cases, the corporate union between said subsidiary and parent company may be characterized by a completely independent management in which the subsidiary is autonomous and only informs the parent of its results and, eventually, of the dividends or profits that are distributed. among shareholders.

Regulation of subsidiaries

The subsidiaries are well differentiated entities in terms of legal, fiscal and regulatory conditions. For this reason, they differ from divisions, which are fully integrated businesses within the parent company.

However, the subsidiary in a country of a foreign company must follow the same procedures for its creation as any local firm, plus some additional previous procedures because it's an investment from a foreign entity.

Thus, the foreign company must adopt, through the administrative body recognized by the legislation of the country of origin, the corresponding agreement to create the subsidiary.

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