ble-2-group-assignment

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 5

HANOI LAW UNIVERSITY LEGAL ENGLISH DEPARTMENT

GROUP ASSIGNMENT

Subject :

BASIC LEGAL ENGLISH 2

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 4

1 Greeting 4

2 Title/ Subject 4

BODY 4

1 Overview of Holding company 4

1.1 Definition 5

1.2 Features 5

1.3 Business size 5

1.4 Legal entity 5

1.5 Financial regulations 5

1.6 Rights of holding company 6

1.7 Duties of holding company 6

2 Overview of subsidiary company 6

2.1 Definition 7

2.2 Business size 7

2.3 Legal entity 7

2.4 Financial regulations 7

2.5 Rights of subsidiary company 7

2.6 Duties of subsidiary company 8

3 Example of some outstanding holding company and its subsidiary 8

4 Aim of forming a holding company 8

4.1 To reduce risk in management 8

4.2 To asset protection 9

4.3 To share costs 9

4.4 To minimise tax 9

5 Aim of forming a subsidiary company 9

5.1 Contain and limited loses 9

5.2 To have tax benefits 10

5.3 Increases effeciancies and diversification 10

5.4 Easy establishment and selling 10

6 The relationship between holding and subsidiary company 10

6.1 Subsidiary independent from Parent 11

6.2 Parental Power Over Subsidiary 11

6.3 Parental Liability for the Subsidiary 12

7 Holding company, subsidiary company incorporation 13

7.1 Holding company incorporation 15

7.2 Subsidiary company incorporation 15

CONCLUSION 16

1 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 4 members: Me, Tuyen, Van Anh and Linh

2 Title/ Subject

Our talk will be about holding and subsidiary companies and we will divide

it into 4 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

1 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

2 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

3 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

4 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

5 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

6 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 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 do 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

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