A subsidiary company is a company whereby 51 per cent or more of the shareholding is owned by another company. Due to the controlling stake of 51 per cent or more of voting rights, the parent company (sometimes also referred to as the controlling company) has the power to determine who sits on the board of directors.
A subsidiary is a separate entity from the parent company. The subsidiary can own property and sue and be sued in its own name. It is essentially a typical company. This is one of the reasons why companies may choose to set up a subsidiary.
A few common points to note about setting up a subsidiary company:
- The subsidiary can have a totally different name which is not associated with the parent company.
- The subsidiary can have a totally different business activity.
- The subsidiary is a separate legal entity and is bounded by the Companies Act and the Company’s Constitution.
- The subsidiary is a typical company and pays corporate taxes based on the tax rates as determined by the Inland Revenue Authority of Singapore (IRAS).
- The subsidiary can be fully foreign owned.
- The profits of the subsidiary can be paid back to the parent company through dividends or other means in accordance with the Singapore Accounting Standards.
Some companies may want to set up a separate business unit with a different set of assets and liabilities. If the business unit were to fail and incur liabilities, the creditors can only go after the subsidiary and not the parent company. However, if the parent company is sued by creditors and becomes insolvent, the subsidiary is part of the assets of the parent company and creditors can lay claim on the subsidiary.
Some foreign companies may want to set up a subsidiary in Singapore to take advantage of the favourable tax rates and corporate tax rebates. It may be advantageous for tax purposes for a foreign company to incorporate a Singapore company, own the shares of the company and run it as a separate entity rather than engage in business as a foreign company itself.
When in doubt, seek legal advice or consult an experienced ACRA Filing Agent.
The editorial team at ACRA Filing Agent.
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