Setting up a subsidiary company

Most people choose to set up a subsidiary for practical reasons: perhaps they want to move into new areas, start offering new products, or try out a new brand identity to see if it helps bring in new types of customers. Whatever your reason, let us help you decide if setting up a subsidiary company is the best option for you. With our help, you’ll create your subsidiary company in no time, without too much hassle or paperwork.

 

What is a subsidiary company?

A subsidiary company is a business which is owned and controlled by another larger company. Subsidiaries most commonly occur when one company buys another. For example, when Google bought YouTube in 2006 for more than $1.6bn, YouTube became a subsidiary of Google. It runs as normal and has its own shares, owned by a parent company – in this case, Google.

When a subsidiary company has shareholders, the parent company will typically buy more than 50% of those shares, making it a majority shareholder.

 

What are the benefits of setting up a subsidiary company?

As we touched on earlier, there are many practical reasons to form a subsidiary. Real estate companies do it often by turning each of the properties they own into a subsidiary. The huge benefit of this is a separation of liability. What this means is that if a subsidiary company (in this instance a property) is sued, the parent company will not bear a liability.

A company might also form a subsidiary company to limit its losses. The movie industry does this every time it makes a film: the movie itself becomes a subsidiary of that parent company. So, if Warner Brothers decide to make a new movie, they will form a new subsidiary around that production so it will be shielded from any losses the movie might incur.

Alternatively, you might want to keep a separate identify and branding. Let’s go back to the Google/Youtube example. When Google acquired YouTube, it had a vested interest in maintaining Youtube’s branding, which had become extremely well-known worldwide. The same was true of US retailer WalMart which bought Asda here in the UK. Walmart understood that its own brand recognition in the UK was not entirely strong or positive, so they kept the popular Asda brand to get around that issue.

Finally, you might also want to ensure separate management and infrastructure when operating in a different country. Every territory has its own nature and challenges. Your management structure which works so well in the UK may not fare so well overseas.

 

How to form a subsidiary company

Setting up a subsidiary can be incredibly valuable, and the process of getting one registered with Companies House is straightforward when you use The Formations Company’s secure online application.

Managing multiple different business entities will create a little more administration for you. There will be separate management, separate reporting and separate filing responsibilities.

Tips to help you set a subsidiary company

1.       The first thing to remember is that this is not the same as operating through a different trading name. Your subsidiary company will be a separate entity. That means it needs to be properly incorporated as a company. The Formations Company can do that for you.

2.       That means you will need at least one person to submit the paperwork and serve as a company director. This can be the same director as the parent company.

3.       You will also need a registered operating address which must be in the country you’re operating in. So, if you’re not based in the UK but want to trade here, you’ll need an office address in London, for example.

4.       You only need a director to set up the company. There is no longer a requirement to have a company secretary as well.

Setting up a subsidiary company is not the best option in every case – you might want to try creating an entirely new company altogether. It’s all about working out which is the best option for your situation. If it’s separation of liability you want, between one or more of your businesses, then setting up a subsidiary company could really help you out.

Now you know how to register a subsidiary company with Companies House, fill out the application to get yours set up in as little as 20 minutes. It’s quick, straightforward and affordable. Head to our packages page to see what options are available, or keep browsing the help centre to learn more about company formations.

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