Are you curious about how some of the world’s largest companies operate? Have you ever wondered how they maintain control over so many different ventures? The answer lies in subsidiary companies. Read on to learn more about Subsidiaries.
What is a subsidiary?
Where a company is owned, controlled, or managed by another company, such a company may be referred to as a subsidiary company. The company in a controlling capacity will often own at least 50% of the subsidiary company, which gives it controlling rights over the subsidiary.
The parent company (Holding Company) and the subsidiary are distinct entities with separate legal personalities, but the parent company will often exercise some level of influence over the subsidiary. Read more on the difference between Holding Companies and Subsidiaries.
Why do companies create subsidiary companies?
- Risk Mitigation: Subsidiary companies offer a smart way to mitigate risk and limit liabilities for parent companies. Incorporated separately, they have their own legal identity and responsibilities, protecting the parent company’s assets in case of liabilities.
- Compliance: In the case of a multinational company, a subsidiary company may be established to secure compliance with the domestic laws and regulations of the jurisdiction where business is being undertaken or perhaps even to take advantage of the tax regime of such jurisdictions.
- Diversification: Companies also create subsidiaries in a bid to diversify their businesses. For example, the reputable Johnson & Johnson owns 265 individual businesses that cut across the pharmaceutical, consumer healthcare, and medical device sectors. Similarly, Alphabet is a holding company that owns four key subsidiaries, namely, Google LLC, XXVI Holdings Inc., Google Ireland Holdings, and Alphabet Capital US LLC, and these subsidiaries also hold other subsidiaries in their portfolios that are spread across several different sectors.
- Transparency: For large companies, creating subsidiaries can also help to facilitate greater financial transparency, allow for better management, and provide more leadership opportunities for employees.
Types of subsidiary companies
There are three types of subsidiaries. They are:
- Wholly Owned Subsidiaries: This is 100% owned by the parent company.
- Partly Owned Subsidiaries: Here, the parent company owns most of the stock of the subsidiary and therefore has controlling interest.
- Joint Venture Subsidiaries: In this case, the subsidiary has been created by two or more companies, with each one owning equal parts of the subsidiary company.
How to register a subsidiary
A subsidiary company is to be registered in the same way any other company is to be registered. Let’s use the Nigerian process as our case study.
- Get a company name
First, one must pick out the preferred names that one would like the company to go by. Then, a search is to be conducted on the CAC portal to confirm the availability of the names. Here, one submits the preferred name and an alternative name and then awaits confirmation from the CAC as to whether the names submitted are available or otherwise.
Where the name is available, one must then move to reserve the name. If the reservation is successful, the CAC will forward to the applicant an approval note containing a name availability code.
- Complete all statutory forms
The next step is to fill all the prescribed forms required to be filled by the CAC. The primary form to be filled is the Form CAC 1.1. This form requires information about the company to be formed (e.g., name, type, business activity, registered address, etc) as well as information about its proposed principal officers, including their necessary personal data.
This form is to be submitted to the CAC alongside the necessary documents, such as the Memorandum and Articles of the Company.
- Pay the necessary filing fees.
To process and complete the application, the applicant must pay the necessary filing fees, registration fees, and stamp duties and provide evidence of payment to the CAC.
- Submit the application for registration
One must present all the necessary documentation to the CAC consequent to which the company will then be registered.
- Obtain post-incorporation documents from the CAC
Once one is successful in incorporating the company the CAC shall present the applicant with the following:
- A certificate of incorporation
- E-Status Report
- A duly approved Memorandum of Association
- A duly approved Article of Association
It must be noted, however, that where the subsidiary is foreign-owned, it is required that such a company must have a minimum issued share capital of N10, 000,000 (Ten Million Naira) and the rules regulating foreign participation in business in Nigeria must be complied with.
However, there’s an even easier way to incorporate your subsidiaries in any African country. Simply click here to get started.