ble-2-group-assignment

HANOI LAW UNIVERSITY LEGAL ENGLISH DEPARTMENT GROUP ASSIGNMENT Subject : BASIC LEGAL ENGLISH Holding company, Subsidiary company in the UK Group: 02 Class: 4331 - N02.TL1 DANG PHUONG TRANG - 433141 BUI KIM TUYEN – 433144 LE THI PHUONG LINH - 433145 TRINH THI VAN ANH – 433157 TABLE OF CONTENTS INTRODUCTION Greeting Good morning teachers and everyone My name is Trang and it is our honor to present our topic about Holding and Subsidiary Companies in UK to you guys Let me take a brief introduction Our group has members: Me, Tuyen, Van Anh and Linh Title/ Subject Our talk will be about holding and subsidiary companies and we will divide it into main parts The first two parts will be about the definition and the aim of forming holding and subsidiary companies entity which is presented by Linh and me, the second part will be about the relationship between holding and subsidiary companies presented by Tuyen The last part is about holding and subsidiary companies incorporation, Van Anh will be the presenter BODY Overview of Holding company According section 1159, Companies act 2006: “a holding company is considered to be a ‘parent’ of a subsidiary when: • The parent company holds greater than 50% of the voting rights in the subsidiary • The parent company is a member of the subsidiary and has the right to appoint or remove a majority of its board of directors • The parent company is a member of the subsidiary and, in accordance with an agreement with other shareholders, it alone controls a majority of the voting rights in the subsidiary” 1.1 Definition A holding company is a company that doesn’t conduct any operations, ventures, or other active tasks for itself Instead, it exists for the purpose of owning assets In other words, the company does not engage in the buying and selling of any products and services Instead, it was formed so that it gains control over one or more companies A holding company is also sometimes called an "umbrella" or parent company 1.2 Features A holding company doesn’t manufacture anything, sell any products or services, or conduct any other business operations Holding companies hold the controlling stock in other companies A holding company is a type of financial organization that owns a controlling interest in other companies, which are called subsidiaries 1.3 Business size Usually a huge corporation who invests in number of fields A holding company structure is popular with large enterprises with multiple business units 1.4 Legal entity A holding company is a business entity—usually a corporation or limited liability company (LLC) 1.5 Financial regulations A holding company is a type of financial organization that owns a controlling interest in other companies, which are called subsidiaries The holding company’s management is also responsible for deciding where to invest its money The holding company can obtain the funds to make its investments by selling equity interests in itself or its subsidiaries or by borrowing It can also earn revenue from payments it receives from its subsidiaries in the form of dividends, distributions, interest payments, rents, and payments for back-office functions it may provide 1.6 Rights of holding company • Controlling power over the subsidiary company • Holds a majority of the voting rights in the undertaking • Has the right to appoint or remove a majority of its board of directors • Right to exercise dominant influence • Rights exercisable only in certain circumstances or temporarily incapable of exercise 1.7 Duties of holding company • Needs to report its financials by including those of the subsidiary company as well, since it holds 50% or more of the rights in the subsidiary company • Responsible for tax obligations of the subsidiary as well • Liable for the sister concern’s operation of business and management of resources in its location • Sometimes serves as a guarantor for the subsidiary in their financial requirements Overview of subsidiary company According section 1162, Companies act 2006: “A company is a “subsidiary” of another company, its “holding company”, if that other company— (a)holds a majority of the voting rights in it, or (b)is a member of it and has the right to appoint or remove a majority of its board of directors, or (c)is a member of it and controls alone, pursuant to an agreement with other members, a majority of the voting rights in it, or if it is a subsidiary of a company that is itself a subsidiary of that other company 2.1 Definition In the corporate world, a subsidiary is a company that belongs to another company, which is usually referred to as the parent company or the holding company 2.2 Business size A private limited company 2.3 Legal entity Subsidiary is distinct legal entities and often has its own board of directors, officers and share certificates 2.4 Financial regulations A subsidiary usually prepares independent financial statements It is regulated by VAT or other regulations 2.5 Rights of subsidiary company • Subsidiary have voting rights, • Rights to operate the company, • Right to file a consolidated tax return that can help the parent company offset losses in either the parent or acquired company by lowering the taxable monies 2.6 Duties of subsidiary company The subsidiary must follow the laws of the country where it is incorporated and operates if a parent company owns a subsidiary in a foreign land Any governance practices for the subsidiary need to be consistent with the purpose for which the subsidiary was established It also share profits and losses with holding company And duties that has been written in the articles of association Example of some outstanding holding company and its subsidiary Facebook is a popular company in the digital industry It has various subsidiaries acquired from time to time Instagram is a photo-sharing application acquired by Facebook in April 2012 It also acquired Whatsapp – a popular messaging application in 2014 Lastly, in march 2014, It bought shares of a virtual reality company, Oculus Google & Nest are subsidiaries of Alphabet British-Dutch multinational Unilever is one of the world’s leading consumer goods firms, selling some of the best known food, cleaning and personal care brands The company is a joint venture of Unilever NV (The Netherlands) and Unilever PLC (UK), the parent companies NV Elma is a subsidiary of Unilever NV and United Holdings is a subsidiary of Unilever plc Aim of forming a holding company 4.1 To reduce risk in management Where a holding company holds the valuable assets and is an entity separate from the operating companies, the risk of losing those assets is minimised if the operating company performs poorly or becomes insolvent For example, if an operating company faces insolvency, the holding company may lose money too However, they generally can’t be pursued legally for the responsibilities of the operating company However, in some circumstances, the holding company can still be found liable for the actions of the operating company’s directors if they were aware of the poor performance 4.2 To asset protection A holding company can hold the valuable assets of a business These assets may include: property; intellectual property and equipment The subsidiaries then take on the daily operations of the business and its trading responsibilities The valuable assets held by the holding company are therefore protected from creditors and other liabilities that the operating companies might incur 4.3 To share costs There may be admin and central services functions that are utilised btly different businesses These can sit naturally within a holding compan, which then makes charges to the subsidiaries so that the costs are shared appropriately amongst them 4.4 To minimise tax Dividends can pass between the subsidiary companies and the holding companies without incurring tax charges Furthermore, tax exemptions available mean that where a company owns more than 10% of the shares in another company and sells those shares there is usually no tax to pay on any gains arising Aim of forming a subsidiary company 5.1 Contain and limited loses The probable losses of a parent company can set off against the subsidiary companies’ profits The assets of subsidiaries can be used as a liability shield against financial losses 5.2 To have tax benefits Subsidiaries follow the laws of a country or state it is located in It has its separate tax ID, pays its own taxes according to its type This is irrespective of the location of parent company & related laws Parent companies can intentionally open subsidiaries in areas where they receive tax benefits For example, special economic zones or rural areas where the government gives certain deductions for operating business 5.3 Increases effeciancies and diversification When the size of the company increases, it often indulges itself into related & unrelated diversification Subsidiaries help to split the activities according to common groups into smaller companies They become easily manageable The employees there can give their complete focus on their respective product or service 5.4 Easy establishment and selling Innovations & experiments can be done through subsidiary companies Different organizational structures, manufacturing techniques & types of products can be developed & put in the market In case of failure, subsidiaries can be shut down without affecting the image of the parent company directly The relationship between holding and subsidiary company Relationship between holding and subsidiary exists when one company controls another by owning majority voting stock The relationship between the parent company and an independent subsidiary tends to be limited 6.1 Subsidiary independent from Parent Despite the name “parent company”, the relationship between a parent company and its subsidiaries is not the same as a parent and child relationship While the parent company has influence over the subsidiary company, the subsidiary is a legally independent entity In the first place is independence in legal liability.As an independent entity, a subsidiary is responsible for its own legal liabilities as well as its debts and taxes This means that lawsuits against the subsidiary cannot collect against the parent company's assets, only those of the subsidiary.For example, the brick manufacturing subsidiary overextended itself and creditors sued, the assets of the construction parent company remain immune from legal actions taken against the subsidiary The parent company still would suffer financial losses as the primary or sole stockholder of the subsidiary but no more than any other stockholder in a company The next one is independence in tax liabilities A subsidiary company pays its own taxes Furthermore, the respective losses and gains from subsidiary firms can allow a parent firm to structure its taxes to take advantage of 10 significant tax deductions without actually losing money from its direct operations And the last one is indepence in accounting A subsidiary pays its own debts and expenses, which not transfer directly to the parent company As a result, a company can own or spin off a subsidiary in a potentially risky business venture knowing that the parent company's assets are protected from any potential losses Should an experimental line of business fail, even up to and including bankruptcy, the entire operation can be wound up without risking the core business 6.2 Parental Power Over Subsidiary The parent company typically functions as the sole stock owner, or at least maintains a controlling interest This makes the subsidiary financially accountable to the parent in the same way public companies are accountable to stockholders.As a majority shareholder, the parent company has the ability to remove or appoint board members for the subsidiary company and is also allowed to decide how the subsidiary will operate.If the parent company wants, it can appoint its own directors to the board of the subsidiary company but this has drawbacks It's harder to make good decisions when serving two masters Besides with a new subsidiary, the parent, as owner, can draft the articles of incorporation, including certain provisions to solidify control: • Not allowing an amendment of the subsidiary's articles or bylaws without the approval of the sole or majority shareholder • Detailed bylaws defining the authority of the subsidiary's corporate officers • Having the bylaws clearly spell out the procedure for electing and removing directors 11 6.3 Parental Liability for the Subsidiary One reason corporations set up subsidiaries is to protect themselves legally If the subsidiary stays independent, the parent isn't liable for any negligent or criminal acts on the subsidiary's part However, there's no real independence Most of the situations in which the parent entity can be found liable for a subsidiary’s liabilities fall into one of three categories: The first one is Single Business Enterprise A parent may be liable for its subsidiary’s activities if the two entities are part of a single business enterprise An example of common facts to this type of case: the subsidiary and parent have undocumented transfers of funds and the subsidiary does business under the name of the parent entity The second one is Under Capitalization If a subsidiary is under capitalized–if it is insolvent from its inception and has no assets that may be grounds for piercing the corporate veil For example in Garden City Co v Burden, a corporation owned an irrigation canal and its subsidiary that had no assets was responsible for operating and maintaining the canal When the canal flooded, plaintiffs successfully sued the parent corporation The Court held that because the operating company had no assets and owned no property it would be inequitable to allow the parent company to escape liability under the pretext of the separate identity of two corporations And the last one is Fraudulent Transfer of Assets If a subsidiary transfers assets to the parent corporation after incurring liability and does not receive equal value in return, the parent company may be sued to at least recover the assets that were fraudulently transferred Holding company, subsidiary company incorporation The regulations for incorporation, that is, forming a company, are set out in the Companies Act 2006 There are a number of steps to be followed in this procedure However, it can be include basically, main steps that includes: 12 Checking if setting up a limited company is right for you; Name choosing; Choosing directors and company secretary; Deciding who are the shareholders or guarantors; Preparing documents agreeing how to run a company; Records checking and Registering company In the very first step – Checking if setting up a limited company is right for you How you set up your business depends on what sort of work you It can also affect the way you pay tax and get funding To incorporate a holding company you can choose the entity of the company, most of the time, holding company is a kind of private limited company Next, in name choosing step, you need to make sure that the name of your company is legally It must follow the rules for company names which is specified in Chapter 1, part about A company’s name of the Companies Act 2006, it is a new name, in other words, it is not duplicate with existing names, you can check for existing trade marks on the website of Companies House In the third step, you must appoint a director In this step, you need to know the qualities to be a director or company secretary and then find out the responsibilities of directors Next step will be deciding who are the shareholders or guarantors You will need at least one shareholder or guarantor, who can be a director Besides, identify people with significant control (PSC) over your company is an essential step too In the fifth step, you need to prepare a 'memorandum of association' and 'articles of association' The form which named …can be easily searched on the website of the Companies House Next, make sure to keep important records of your company It might include accounting record And the last step, register your company, you'll need to register an official address and choose a SIC code - this identifies what your company does Most people can register for Corporation Tax at the same time as registering 13 with Companies House If you cannot, register separately with HM Revenue and Customs (HMRC) after you’ve registered your company with Companies House Mainly, whenever, you want to incorporate a company, either a holding company or subsidiary company, you will need to follow binding document such as Form IN01 which is an application to register a company This form is published by Companies House – A register office of the UK and you can find this form on the website of Companies House To talk in detail, first I will talk about Holding company incorporation, then I will present about forming a subsidiary company 7.1 Holding company incorporation In some ways, Holding company is very similar to other private limited companies so it needs to be registered with Companies House like every other type of company However, a holding company just undertakes the work to control the activities of its subsidiary so it will need these below documents: • Memorandum and Articles of Association • Name for company • A registered address • Details of at least one director and shareholders • Full details of any shares already given to shareholders 7.2 Subsidiary company incorporation The most common form of company for a UK subsidiary is the private limited company (LTD), and setting up an ltd company involves going through the standard UK company registration process and applying to Companies House 14 A subsidiary company only exists when it has its holding company, even though, it has its own legal personality, subsidiary is still controlled by the parent company When a corporation, called the parent corporation, buys all or the majority of shares in another company, the company becomes a subsidiary of the parent corporation A parent corporation can also create a subsidiary by owning all of the shares of a newly created company When forming a subsidiary company, these below documents are required: • A registered office address • Articles of Association • Registration of employees The Employee register is where you store all important information about your employees, such as name, address, telephone numbers, job title etc In addition, you can also register information about the employee's qualifications, absences, activities, documents, notes and insert pictures of your employees • Statutory accounts Also known as annual accounts – are a set of financial reports prepared at the end of each financial year Statutory accounts report the financial activity and performance of a limited company Annual accounts can also be used to work out corporation tax • Subsidiary company registration CONCLUSION Holding and subsidiary are the prominent entity not only in the UK but also over the world Knowing about these two types of company will help us enrich our knowledge about the business entities, understand more how it works and open the door of opportunities for forming our own company in the near future Due to time limitation and our knowledge, we just emphasize 15 some of the basis factors that from our point of view, it is the significant We hope that after our presentation, you guys can know more about holding and subsidiary companies Moreover, you can use this knowledge in your near future 16