Subsidiary is... What are subsidiaries

A subsidiary company is a legally free organization that has the right to control production, supply, development of new technologies, sale of shares, and so on, however, a subsidiary company must give all its income to the parent company, and this company, in turn, allocates funds for the wages of workers , on equipment, production and various expenses. In fact, the state of the subsidiary depends on the financial position of the head office of the parent company.

From a legal point of view, a subsidiary is practically a free entity that is financed by another company, however, today we see that the parent company has a huge influence on its subsidiary. That is, he changes leaders, putting his people, indicates the path of the downed goods and controls production.

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Changes in control took place in 1994, until that time the subsidiary, from the legal side, was completely controlled by the parent only finances, however, it was in 1994 that a law was adopted that states that a subsidiary, which is also a business company, is a created or a company acquired by another company.

Such a society has the right to dictate the conditions of production, however, at the same time it has a huge dependence on the mother community. As a rule, disagreements never arise between the child and parent communities, because they are directly dependent on each other.

In the event of the bankruptcy of a subsidiary, the parent company must take all the blame for this incident. In the event that the power sees that the financial condition of the main office can fully financially support its subsidiary, then it has the right to force it to do so.

Opening a subsidiary, step by step instructions

To date, opening a child community is not difficult, for this you will need:

1. All documents of the ruling company.
2. Charter subsidiary organization.
3. A legally formalized decision to establish a subsidiary.
4. You will need an application form p11001.
5. It is also very important to have a document that indicates that your company does not have any debt.

There are two ways to create a child community:

Method number 1 instruction

1. To get started, draw up a special charter for the subsidiary and indicate in it all the conditions you need. If the company has several shareholders of the main capital, then you should create an agreement that describes the distribution of shares between them.
2. It is necessary to draw up a protocol among the founders. This protocol must legally confirm the fact of the creation of a subsidiary.
3. When creating any enterprise, including a subsidiary, you need to specify its location and contact details. Such a document has the right to create only the director of the main community, which will continue to control the child.
4. It is worth noting that before registering a subsidiary, you need to get a certificate that indicates that the main office does not have any kind of debt. A subsidiary is registered only when all debts of the parent community are repaid. If the subsidiary incurs losses due to underfunding by the heads of the head office, then through the court, the parent company will be forced to incur losses in favor of its subsidiary.
5. Form p11001 must be completed in full.
6. After all the above documents are completed, Chief Accountant and all collected Required documents, you need to submit all the papers for consideration to the tax authority in which your company is actually registered. After all contracts are ready, the subsidiary company can start its existence.

Method number 2 instruction

There are times when a subsidiary is not created, but assigned by mutual agreement. In the common people, this can be called "Absorption". Everything happens very simply: one company ruins another, after which, for a small amount, it appropriates it for itself. Today, there are a lot of companies that absorb enterprises.

Take, for example, the automotive concern Volkswagen Group, which over the years of its existence has absorbed almost the entire automotive business in Germany and Europe.

The great concern has a well-established scheme, for example, let's take the takeover of the automaker Audi: When Audi experienced financial difficulties at the end of the 20th century, it was kept afloat by the production of only one car, but Volkswagen creates a car of the same class, which is cheaper, more beautiful, more reliable and better in technical characteristics.

Naturally, motorists will buy a Volkswagen product, not an Audi.

Such a scheme is something unprofitable for the acquiring company, however, this contribution completely illuminates Audi, as a result of which it asks for financial assistance from Volkswagen, after which it becomes a subsidiary, to which its directors are placed.

There are many such examples, for example, take the same car industry: today there are three concerns: Volkswagen, Toyota, General Motors. They control 85 percent of the entire automotive world. Few would think, however, almost all famous brands belong to these companies.

Well, whether you are absorbing a company or simply agreed on everything by mutual agreement, you must do the following:

1. First you need to choose the direction of the subsidiary, that is, give detailed instructions by production. It should be noted that the production of a subsidiary may differ from that of the parent community.
2. The subsidiary is an independent entity, however, the rules are still dictated by the parent community, so a detailed charter should be developed regarding the subsidiary community.
3. By law, the company being acquired must have its seal, its bank account, its address, and its registered natural person, so take care of all this.
4. Decide on the choice of director and accountant in the controlled community. Agree with them all agreements regarding profits.
5. You need to contact the govt. chamber and submit an application with the following documents: Bank statement on your account, performance characteristics officials affiliated community, the charter signed by you, letter of guarantee, in which the address of the subsidiary community is indicated, information about the founder, a certified copy of the act of acceptance and transfer of the fund, certified copies of payment transactions must be provided in writing.
6. The last step is simply to obtain a certificate of registered subsidiary, after the company is registered, it can begin its official duties.

Pros and cons of a subsidiary:

pros

1. The subsidiary does not have to worry about bankruptcy, as the parent company is obligated to pay off any debts of its company.
2. You should not calculate the budget and expenses of the company, because all this responsibility is assumed by the parent community.
3. There is no need to be afraid of competitors, because the parent company is personally worried about them.

Minuses

1. Of course, the main disadvantage is the lack of freedom. A subsidiary must produce what will be imposed on it! No control over supplies, production and finances. With such conditions it is very difficult to develop technically.
2. The entire capital is under the control of the parent community, so it is difficult for you to invest in the development of a subsidiary. The parent community allocates some capital, which is fully distributed.
3. If there are still enterprises under the authority of your parent community, then in the event of their bankruptcy, it must compensate for all losses, so the money will be allocated from the earnings of another subsidiary, which will actually provide several enterprises with its production. But if the bankruptcy is too severe, and it is the office of the parent community that goes bankrupt, then, most likely, the subsidiary will be closed, since there will be no money to finance it. The main salvation will be either sponsors or some other parent company.

tax accounting

A subsidiary company is obliged to pay taxes to the state, however, in the same way as the parent organization sponsors this community. There are cases when a subsidiary company is indebted to the office of the parent company.

In such cases, there are several developments of events, among which:

• the closure of a subsidiary (in the event that the debt is too large);
• reducing the capital of a subsidiary, while the pace of production should not fall;
• debt forgiveness;

The most common option is the third, because the subsidiary does not have its own capital, so all the debt was formed due to underfunding from the parent community.

Forgiveness of the debt of a subsidiary is a legal process that is quite legal and transparent.

What is the difference between a subsidiary and a branch?

A subsidiary is a legal entity, all its actions, such as contracts and various important decisions, must be agreed with the parent company in the form of a deal. A subsidiary may be located exclusively in the region in which its "Mother" is located.

The branch is not a legal entity, it deals only with those cases that main company. Due to the fact that the branch is not a legal entity, all transactions are executed on behalf of the main enterprise. It should also be understood that a branch can be located not only in a different region from the main company, but also located on the territory of other states.

If you talk very plain language, and as a result, far from correct, from a legal point of view, a subsidiary is a kind of branch of an enterprise in your city. Let's say the head office is located in Moscow. And in the city of Krasnodar, its branch opens, this is a subsidiary.

It can be short and strictly official language.

Subsidiary- an enterprise established as a legal entity by another enterprise (founder) by transferring to it a part of its property for full economic management. The founder of a subsidiary approves the charter of the enterprise, appoints its head and exercises other rights of the owner in relation to the subsidiary, provided for by legislative acts on the enterprise.

Now not a lot more detailed and simple language. I propose to consider an example. Let's say we have an Almaz enterprise, which is located in the city of Vorkuta. It doesn't matter what an enterprise does, it can open its subsidiary in any city of the country (with the exception of those cases provided for by the Tax Code, etc.).

And now our Almaz enterprise is successfully developing, and the founders of this enterprise at the general meeting of the founders (although the founder may well be one single person) decide that it is time to expand. What to choose? Open a branch network or a subsidiary? Most often, in such matters, they come to the decision to open a subsidiary, and not branches. Branches do not have their own charter, and in principle, the head office has to fully monitor its work. At the same time, the subsidiary draws up its charter, and the head of the subsidiary is appointed as the head office. In fact, the head of a subsidiary is responsible for all operations performed in its branch. He manages all operations, is engaged in promotion, organization of work, and, in the end, hires workers himself. It turns out this is a kind of separate enterprise. The manager only has to agree on the main costs, etc. from the head offices, to transfer the main reports to it. All current issues and reports, the subsidiary conducts independently.

In half of the cases, when opening a subsidiary, the company makes additions to the name. Let's take a look at our example. The Almaz company, located in Vorkuta, decided to open its subsidiary in St. Petersburg. The name of this subsidiary may, for example, sound like SZDP Almaz, which can be read as North-Western Subsidiary Almaz. Well, or just SZ "Diamond". There are a lot of options.

However, a change in the name in case of opening a subsidiary is not necessary. It all depends on the charter adopted by him.

By opening a subsidiary, the company releases itself from the obligation to monitor and manage the flow of documents in it. The company only receives the main reports, which clearly simplifies work with other regions. Most of the responsibility for the operation of the branch lies with the appointed head of the subsidiary. By the way, this is precisely why the heads of a subsidiary are more active and efficient than the heads of branches. After all, the head of a subsidiary actually works for himself, and even bears almost full legal responsibility. Naturally, he earns more than the head of the branch.

Subsidiaries are economic entities that are created and registered by parent organizations.

Definition of concepts

Subsidiaries are legal entities created by other (parent) organizations that give them certain powers and functions, as well as provide their property for use. It is also worth noting that the main company draws up the charter, and also appoints the management of the newly formed one.

Subsidiaries are one of the most common mechanisms for expanding a business. When deciding to scale up production or enter new markets, managers often resort to this mechanism.

Distinctive features

So, the management decided to create an accountable firm. This company is a subsidiary. It has a number of features that distinguish it from other organizations, namely:

• conducting independent business activities, in accordance with the charter;
• relative independence of management in matters relating to personnel and marketing policy;
• significant distance from the parent company;
• opportunity to build relationships with government bodies, partners, competitors, suppliers as well as customers.

What is a branch

A branch is an organization outside the parent company that has limited powers as well as responsibilities. It is worth noting that it is a structural unit, and not an independent legal entity. The branch does not have the right to act on its own behalf, and is not endowed with its own material resources.

Branches and subsidiaries

Subsidiaries and branches are quite often confused, although these concepts cannot be identified. The main difference between these organizations lies in their empowerment.

Subsidiaries are completely independent organizations. Although they are fully accountable to their parent firms, their managers have full authority to make management decisions and are fully responsible for their actions. They also have their own charter. It can be said that from the moment the charter is drawn up and the head is appointed, the subsidiary receives almost complete independence in relation to personnel and marketing policies, as well as other activities.

Speaking about the branch, it is worth noting that it is absolutely dependent on the head office. In fact, he is controlled by him. Such an organization does not have its own charter, which means that all issues regarding production, advertising and personnel are decided by the top management.

If we are talking about the global expansion of production, then the organization of subsidiaries will be appropriate. In the event that the territorial spread is small, it is worth giving preference to branches.

Creation of subsidiaries

In order to open a subsidiary, you need to go through the following procedures:

• it is necessary to draw up the charter of the new organization, as well as to clearly distribute the shares of capital between the owners;
• the director of the parent company signs a document indicating the exact coordinates and contacts of the subsidiary;
• the organization must obtain certificates from the tax, as well as from credit organizations, that there are no overdue debts;
• then comes the turn of filling out a special registration form;
• at the last stage, a chief accountant must be appointed, after which the documents are sent to the tax service, where a decision is made on the registration of a subsidiary.

Absorption

You can create a subsidiary not only from scratch, but also by acquiring other organizations (by mutual agreement, on account of debts or in other ways). In this case, the procedure will look like this:

• to begin with, it is worth deciding whether the production of the enterprise will be reoriented to the standards of the head office or whether it will remain in the same direction;
• the next stage is the development of statutory documents;
• it is necessary to find out the validity of the previous details of the enterprise or assign new ones to it;
• then the director (or manager) is appointed, as well as the chief accountant, who are later transferred to the responsibility for managing the subsidiary;
• then it is necessary to apply to the tax and registration authorities with an appropriate application for registration of a new enterprise;
• after the registration certificate is received, the subsidiary can operate in full.

How control is exercised

Control over the activities of subsidiaries can be carried out in the following ways:

• monitoring - implies continuous study and analysis of the information contained in the subsidiary's reporting documents;
• periodic mandatory reports of the directors of subsidiaries to senior management on the results of their activities;
• collection and analysis of performance indicators of the enterprise by the efforts of employees of the internal control unit;
• involvement of third-party auditors to study the state of affairs and financial flows in a subsidiary;
• periodic audits with the participation of the controlling bodies of the parent company;
• also quite an important aspect are inspections of state control bodies.

Benefits of subsidiaries

A company is a subsidiary if it can be described as relatively independent organization which is accountable to the parent company. This form has a number of undeniable advantages:

• bankruptcy of the "daughter" is practically impossible, since the main organization is responsible for all debt obligations (an exception can be considered the case when the main company itself suffers serious losses);
• all responsibility for the preparation of the budget of the subsidiary, as well as covering its expenses, is assumed by the head office;
• the subsidiary may enjoy the reputation as well as the marketing trappings of the parent.

It should be noted that the declared benefits apply specifically to the governing bodies of the subsidiaries.

Disadvantages of subsidiaries

We can talk about the following shortcomings of the "daughters":

• since the product range and production technology are clearly dictated by the parent organization, the management of the subsidiary will have to forget about ambitions for innovation, rationalization, and expansion of scale;
• the managers of the subsidiary cannot freely dispose of the capital, since the directions for its use are clearly defined by the top management;
• there is a risk of closing the enterprise in the event of the bankruptcy of the parent company or the ruin of other "daughters".

How is it managed

The subsidiaries are managed by a director who is appointed directly by the top management of the parent company. Despite the provision of fairly broad powers, one cannot speak of complete independence, since the "daughter" is structural unit head firm. At the beginning of the reporting period, the manager "goes down from above" the budget, the execution of which he will later have to report. In addition, the "daughter" works in accordance with the charter, which is drawn up in the main office. Also, top management monitors the implementation of all legislative and legal norms by their department.

What is the responsibility of the parent organization

According to regulatory documents, the subsidiary is a separate legal entity. At the same time, it has its own own capital which makes it possible to independently bear responsibility for its debt obligations. Therefore, we can say that the "daughter" and the parent company have nothing to do with each other's debts.

Nevertheless, the legislation highlights several cases that lead to liability on the part of the parent organization, namely:

• If a certain transaction was concluded by the "daughter" at the direction or with the participation of the parent company. If this fact is documented, then both entities are liable for debt obligations. In the event of the insolvency of the subsidiary, the entire cargo is transferred to the parent organization.
• The bankruptcy of a subsidiary can also lead to liability on the part of the parent company. At the same time, insolvency must occur precisely as a result of the execution of orders or instructions of the second. If the property of the subsidiary is not enough to cover all debts, then the parent company assumes obligations for the remaining share.

Although the subsidiary has sufficient high level freedom and broad powers, its financing is carried out by the parent organization, which also determines the direction of production activities. Also, despite the relative independence of the "daughter", the head office exercises constant control over its financial and marketing activities.

When opening branches or subsidiaries, it is necessary to take into account their important differences. For example, a subsidiary is entity which can acquire and exercise property and personal non-property rights on its own behalf, bear obligations, be a plaintiff and a defendant in court. A branch is not a legal entity. What to give preference to - a branch structure or a network of subsidiaries?

Large companies were formed spontaneously - they bought the enterprises they liked and sold the "objectionable ones". After the composition of the assets was already determined, structural adjustments began, which are still going on. And if the answer to the question about the consolidation of various assets into subgroups depends entirely on the specifics of a particular holding, then how is the issue of the legal form of geographically distributed divisions resolved? What to choose - a branch structure or a network of subsidiaries?

There is no single correct answer to this question. Much will depend on strategic business goals , types of activities implemented by the holding, and other equally important factors. As a rule, the branch network is used by groups that have one key area of ​​activity, the rest prefer to create their divisions in the form of subsidiaries. In addition, the second option is safer for business in general.

Russian holdings decide for themselves the question in different ways: whether to use subsidiaries or branches? General rule, which can be distinguished from the analysis of practice, will sound as follows: vertically integrated holdings and diversified corporations give preference to "subsidiaries", mono-holdings that have one key type of activity create branch networks.

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What is a subsidiary

An example is the experience of MOESK, which provides electricity transmission services. It has several branches, each of which already reflects specialization in its name: Moscow Cable Networks, Central Electricity of the net”, etc. But in addition to branches, MOESK also has subsidiaries - these are companies whose activities are more of an auxiliary nature. A large retail chain did the same. She transferred most of her stores from the category of "daughters" to branches.

Expert Experience

Anatoly Ryzhov, specialist in the treasury department of a large retail chain

Until February 2008, each store was registered as a separate legal entity (subsidiary). In order to use such functions of the bank as collection, payment for non-cash services (acquiring, consumer lending), to make payments between branches and the managing company, we had to open two or three current accounts for each store. Considering that our company had about 400 such subsidiaries, more than a thousand current accounts were opened and serviced throughout the group. Moreover, each of them had its own database in the accounting system. All this was the cause of many kinds of errors and painstaking work for their analysis and elimination. The worst thing about the current situation was that it was simply unrealistic to control mutual settlements on all accounts. To understand the scale of the problem, I will say that on average we had to register about 500-600 outgoing and more than 10,000 incoming payments per day.

But there are also such enterprises that, even with one pronounced type of activity, prefer the subsidiary structure of the branch network.

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Features of creating and managing a subsidiary

Holdings do not have any particular problems when opening branches or subsidiaries, however, there are important differences that must be taken into account when determining what the group structure will be.

The procedure for creating branches by joint-stock companies or limited liability companies is determined federal laws: "About joint-stock companies”of December 26, 1995 No. 208-FZ and “On Limited Liability Companies” of February 8, 1998 No. 14-FZ. The fundamental difference is that in order to open branches, an LLC requires a decision of the general meeting of participants (at least two-thirds of the votes), and in joint-stock companies, amendments to the charter regarding the creation of branches, their opening or liquidation lies within the competence of the board of directors. By analogy, decisions are made on the creation (participation) in subsidiaries, there is no fundamental difference.

An important point is the management of a new structural unit. The choice in favor of one or another option will largely be dictated by how centralized management is in the group.

Branches are headed by a manager appointed by the holding, who acts on the basis of a power of attorney and a branch regulation (Article 185 of the Civil Code of the Russian Federation). And there are no problems with control. In the position or in the power of attorney, one can clearly define the powers of his head, up to the types and size of transactions that he has the right to make. And also it will not be superfluous to prescribe the procedure for coordination with the relevant services of the holding.

Things are different with the holding structure, which consists of subsidiaries, each of which has its own executive bodies, which means the ability to make decisions independently. The holding, in order to obtain the necessary control over its "daughter", will need to indicate in its charter what types and amounts of transactions must be carried out with the approval of the board of directors or the general meeting (Article 52 of the Civil Code of the Russian Federation).

In other words, the management company of a group consisting of subsidiaries is more likely to interfere in the strategic important decisions their wards, but not in operational management. For many holdings, this perfect option, which allows not to inflate the staff of managers, as well as to quickly respond to the changing situation in the regions.

Expert opinion

Tatiana Lvova

Among the advantages of the branch variant of the organization of the company is that the branches are in the sphere of direct action of the administrative mechanisms of the parent company. At the same time, when choosing the organizational and legal form of a subsidiary, in many cases preference is given to creating a subsidiary with the right of a legal entity, since it is a full-fledged subject of economic relations.

A subsidiary is a firm that may have greater responsibility and independence, and its functionality, as a registered independent legal entity, is much higher. So, it (even in the form of a limited liability company) is able to issue securities, which is not available to a branch.

But with the "branch option" there is no holding company with its advantages, which consist, in particular, in the separation of property and liability of the main and subsidiaries business companies. The organization bears full property liability for civil-legal obligations of the branch.

Tax aspect

The choice in favor of a branch structure or the creation of subsidiaries is seriously influenced by the issues of formation and tax reporting, as well as the risks of claims from the tax office. Let's dwell on this in more detail.

Let's imagine a very real situation: the tax inspectorate has requested a certain set of documents relating to the work of the holding's division, and it must be provided within ten days. If the unit is created in the form of a branch, then, to solve the problem, well-established methods of transferring data and original documents will be required. Despite the development information technologies, the problem may not be trivial. In principle, such difficulties cannot arise with a subsidiary, since it acts as an independent legal entity and all documentation is kept at its location.

Moreover, the branch structure will require additional efforts from the holding to maintain tax records. So, in relation to income tax, you will have to calculate the amount relating to each branch (Article 288 of the Tax Code of the Russian Federation), and the declaration must be submitted not only at the location of the company, but also where they are located (Article 289 of the Tax Code of the Russian Federation). In addition, the location of the units will have to pay taxes on movable and immovable property belonging to them. And in addition to everything, the branch structure involves the consolidation of all business operations of divisions in the financial statements, which provides a considerable burden on the accounting department.

Expert opinion

Artem Bersenev

Unlike a branch, the establishment of a subsidiary, that is, a separate legal entity, can significantly reduce the costs associated with maintaining accounting and tax records in the parent organization in the branch form, since such costs will be borne by it itself. This means that the responsibility for the reliable formation of accounting and tax reporting rests with him.

In addition, it should be borne in mind that the presence of branches can lead to an increase in the timing of the field tax audit head organization. Also, its liquidation can also initiate an on-site tax audit of the parent organization. In turn, such rules of on-site tax audits do not apply to subsidiaries.

At the same time, holdings consisting of subsidiaries also have a number of disadvantages. One of the favorite topics of the tax authorities is intracompany transfer pricing , which is often used by groups, including for the redistribution of profits between their member enterprises. It is clear that this problem does not concern the branch structure, but is the exclusive prerogative of subsidiaries. Moreover, the loss received by one of the "daughters" of the holding cannot be used to reduce the tax base of the other "daughter" or management company.

Expert opinion

Artem Bersenev, tax consultant of the department of tax law and consulting LLC "Intelis-Audit", Ph.D. n.

As a rule, separate cost estimates for their maintenance are prepared for branches for a certain period of time (most often for one calendar year, broken down by quarters (by months)). At the end of the established periods of time, the branches form the appropriate reports to the parent organization. At the same time, the fact has become quite common when the costs of maintaining it exceed the income generated by it, which leads to the need to eliminate them.

For subsidiaries, the most common form of management reporting is budgeting and performance reports. Moreover, if such a company is unprofitable, then the liquidation of a separate legal entity for the parent organization is more painless.

Other people's obligations

The most serious drawback of the branch structure in a crisis is that branches act on behalf of the society that created them. In other words, the holding is fully responsible for their actions: it pays fines and compensates for losses. Moreover, if the tax inspectorate seizes the holding's accounts because of one branch, this can paralyze all of its work.

It's easier with subsidiaries. These are legal entities within the holding, which are independently liable for their obligations. But it must be taken into account that the parent company in case of problems with the "daughter" can be held jointly and severally or subsidiaryly liable. In the first case, the parent company gave instructions to the subsidiary that were binding. In the second, she went bankrupt, following the direct instructions of the holding's management company, and now the "daughter" does not have enough of its own assets to pay off all obligations. Their shortage will most likely have to be compensated by the management company of the holding at the expense of its own property or Money.

Expert opinion

Tatiana Lvova, lawyer, consultant of the INTELIS group of companies

The current legislation enshrines the cases of assigning responsibility for the transactions of a subsidiary to the parent organization:

the head organization, which has the right to give instructions to the subsidiary, including under an agreement with it, instructions that are obligatory for it, is jointly and severally liable with it for transactions concluded by the latter in pursuance of such instructions. In paragraph 31 of the Resolution of the Plenums of the Supreme Court of the Russian Federation and the Supreme Arbitration Court of the Russian Federation dated July 1, 1996 No. 6/8, it is noted that both legal entities are involved in such cases as co-defendants in the manner prescribed by the procedural legislation;
the parent organization bears subsidiary liability for the debts of the subsidiary in the event of insolvency (bankruptcy) of the latter, which arose through the fault of the parent organization.

It should also be noted here that the legislation establishes the right of participants (shareholders) of a subsidiary to demand compensation from the parent organization for losses caused through its fault to the subsidiary, unless otherwise provided by laws on business companies.

table. Key differences between branches and subsidiaries

VIDEO: How to objectively evaluate the results of subsidiaries

Inconsistent reporting of subsidiaries, different performance indicators - are you familiar with such problems? If so, it's time to revise the methodology and procedure for evaluating the performance of subsidiaries. How to proceed, look at the video.

A subsidiary is a separate legal entity with a full set of rights and obligations. Let's take a closer look at what a subsidiary is, how it works, and how it differs from a branch.

What is a subsidiary

A subsidiary is a full-fledged legal entity with a full set of rights and obligations inherent in the chosen organizational form. In its economic activities, it is guided by constituent documents, and bank accounts.

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What will help: the instruction contains a clear procedure for checking management reporting, detailed analysis each indicator characterizing the financial condition of the company.

What will help: establish interaction between the financial services of the management company and subsidiaries. It sets out the deadlines by which departments provide data for reports and budgets.

What will help: the regulation describes the main principles and methodology for the formation and approval of the budgets of the group's subsidiaries. Special attention is paid to the procedure for making changes to the approved plans. The use of this document in practice will help to reconcile the interests of all participants in the budget process.

How is a subsidiary different from a branch?

A branch, unlike a subsidiary, is completely deprived of autonomy, since it is considered only a separate division of the company. Its activities are regulated by the regulation on the branch, which is approved by the head office.

table. Comparison: branch and subsidiary

"Daughter" or branch: what is more convenient and cheaper for the company

Your decision whether to open a subsidiary or whether a branch is enough, or even a separate division, depends on the tax consequences and asset protection. We have identified criteria by which it is easier to determine what to choose.

How to open a subsidiary

To register a "daughter" of the main company, you will need:

1. Form the statutory documents, the minutes of the meeting of the founders on the appointment of the director. Assure them at the notary for registration (five working days);
2. Conclude an agreement of intent or receive an information letter from the landlord to confirm the address of the location of the unit (five working days);
3. Register a legal entity in the funds and statistical bodies at the location of the subsidiary (five working days);
4. Make a seal of the newly created company (one working day);
5. Open a bank account in the usual way (three business days).

How to finance a subsidiary

The company can finance its subsidiary both at the expense of its own funds and at the expense of bank loans.

This can be done on your own in the following ways:

• make a contribution to the authorized capital in cash or property;
• transfer the necessary funds as an advance payment for future work (services);
• provide goods for sale with a significant deferred payment;
• give a loan.

When attracting loans, it should be taken into account that a subsidiary company at the beginning of its activity is most often unprofitable. The bank can either refuse the funds or offer them as collateral for another, more profitable enterprise of the company. It is possible to increase the authorized capital of the "daughter" to positive, but this is a costly and lengthy procedure, which also requires careful legal registration. In addition, the owners of many companies deliberately keep the share capital low, thereby reducing the risk of losses.

All settlement transactions between the subsidiaries of the group are formalized only by business contracts, since in such cases they may be the basis for the transfer of funds or the transfer of assets.

Question: how to keep track of the money of subsidiaries?

Elena Ageeva, financial director of LLC "Golder Electronics"

It's time to solve the problems of the "daughter" if she:

• submits budgets, financial plans and management reports with delays to the parent company;
• regularly deviates from the approved cash flow budget;
• increases the loan portfolio without objective reasons;
• tightens;
• disrupts the terms of payment to counterparties;
• makes mistakes in data on debts, expenses, receipts.

For more information on what to do in such a situation, read the material. from .

How to manage and control a subsidiary

Takes over the management of the subsidiary general manager, which may be one of its co-owners. In addition, in a subsidiary company, you can create your own executive body, such as a board or board of directors. Since all operational activities are managed by their own management, and strategic decisions are made by the owners, this gives more autonomy to the subsidiary. Current control in it is based on regular monitoring of the implementation of the approved performance targets and analysis of identified deviations. This best option, allowing, on the one hand, not to inflate the staff of managerial personnel, and, on the other hand, to quickly respond to the changing situation in the subsidiary.

Question: which is easier to manage - a branch or a subsidiary?

Natalia Alekseeva, financial director of GC "TRIERE", Ph.D. n.

We will use the following parameters for evaluation:

Efficiency of decision-making;

The risk of exceeding authority by the management of the unit;

Efficiency of movement of fixed assets and goods;

The degree of mobility of employees;

Number of functions performed on site;

The degree of workload of the staff of the parent company.

Each indicator is evaluated by points (from 1 to 5). The higher the score, the easier it is to manage the unit. We then compare the combined score for the two scenarios (see Table 1).

Table 1. Assessment of the degree of controllability of a branch and a subsidiary

Indicator			Subsidiary		Note
	Explanation	Evaluation, score	Explanation	Evaluation, score
Efficiency of decision-making	Decisions are made in the branch within the established powers or according to the regulations of the head unit		All key decisions are made by the general meeting of participants		Decisions for a branch are made more quickly than for a subsidiary
The risk of exceeding authority by the management of the unit	Headed by the head (head, director) of the branch, acting on the basis of a power of attorney		Headed by a director acting on the basis of the charter		For a branch, the risk of abuse of authority by officials is lower
Efficiency of moving property	The movement of property is documented by internal invoices, since in fact the movement of objects occurs between divisions of one legal entity without transfer of ownership		Only through contributions to the authorized capital or purchase and sale agreements. It is possible to transfer assets free of charge, but there is a risk of a tax audit		All transactions with subsidiaries are possible only under contracts. Significant tax disadvantage for a subsidiary – transactions are subject to tax administration (controlled transactions)
Goods movement speed	Movement of goods within a group of companies without transfer of ownership. Taxes do not arise, since there is no sale of goods		Only under a sales contract or commission with the occurrence and payment of VAT and income tax		The subsidiary has a clear price advantage, as the additional markup in the supply chain is less than that of the subsidiary
Efficiency of movement of employees	By additional agreement to employment contract about changing jobs		Only through transfer or dismissal		Transactions for the branch are carried out according to a simplified procedure, do not require the conclusion of contracts, are less painful for the staff
Number of functions performed on site	Part of the auxiliary functions can be performed by the head unit		The performance of all auxiliary functions in the areas of: HR, lawyers, accounting, IT, etc. should be ensured, including through outsourcing. The parent unit may perform part of the functions of a subsidiary, but only under an agreement
The degree of workload of the staff of the parent company
Overall assessment criteria

If we evaluate seven criteria for the degree of manageability of divisions (see Table 1), we can conclude that it is easier to manage a branch (30 points) than a subsidiary (22 points).

For more information about what is more profitable for a subsidiary or a branch, see the decision from .

Accounting and management accounting in a subsidiary

The subsidiary maintains accounting and tax records, as well as being responsible to the tax authorities for the formation of reliable reports.

Video consultation: how to objectively evaluate the results of subsidiaries

How to liquidate a subsidiary

The liquidation of a subsidiary is a complex and lengthy process that involves carrying out all the procedures provided for in this case: making a decision by the owners or obtaining a court decision, creating a liquidation commission, notifying counterparties, settling debts, dismissing staff, etc. All this requires additional financial costs . The liquidation of the "daughter" is considered completed, and the legal entity - ceased to exist only after the filing of this