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What Is a Subsidiary Law

Companies operating in more than one country often find it useful or necessary to set up subsidiaries. For example, a multinational may establish a subsidiary in a country to benefit from favourable tax treatment, or a country may require multinational corporations to establish local subsidiaries to do business there. When a company is purchased, the parent company may find that the level of awareness of the acquired company in the market deserves to make it a subsidiary rather than merge it with the parent company. A subsidiary may also produce goods or services that are completely different from those produced by the parent company. In this case, it would not make sense to merge the operations. (B) includes any service company wholly or partly owned by an insured custodian or a subsidiary of such a service company. Subsidiaries can be established in different ways and for different reasons. A company can form a subsidiary either by acquiring a majority stake in an existing company or by creating the company itself. If a company acquires an existing company, the creation of a subsidiary may be preferable to a merger, as the parent company may acquire a majority stake with a lower investment than that required by a merger. In addition, the approval of the shareholders of the acquired company is not required, as would be the case in the event of a merger. Companies also set up subsidiaries with the specific aim of limiting their liability for new risky business.

The parent company and the subsidiary remain separate legal entities and the obligations of one are separate from those of the other. However, if a subsidiary becomes financially precarious, the parent company is often sued by creditors. In some cases, the courts will hold the parent company liable, but in general, the separation of corporate identities immunizes the parent company from financial liability for the subsidiary`s liabilities. A disadvantage of the mother-daughter relationship is the possibility of multiple taxation. Another is the duty of the parent company to promote the corporate interests of the subsidiary, to act in its best interest and to maintain its own corporate identity. If the parent company does not meet these requirements, the courts will consider the subsidiary simply as a business channel for the parent company, and both companies will be considered as a single entity for liability purposes. Pursuant to Article 12 of the USCS § 1813 (w) (4), [Title 12. Chapter 16 Federal Deposit Insurance Corporation] the term subsidiary – A subsidiary or corporation is a subsidiary in which another, generally larger, company known as the parent company holds all or at least a majority of the shares.

As the owner of the subsidiary, the parent company may control the activities of the subsidiary. This agreement is different from a merger in which a company buys another company and dissolves the organizational structure and identity of the acquired company. `(A) any company owned or controlled, directly or indirectly, by another undertaking; and…

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