When does it make more sense to create a subsidiary instead of a new company?

 

If you want to create a subsidiary of a foreign parent company, you need to verify whether it is subject to agreements that forbid the creation of a subsidiary. You should have the required lender or shareholders’ approval before the incorporation. Firstbase.io can offer recommendations to help facilitate some of these legal discussions if necessary through our Firstbase.io Network.

There are several scenarios where a subsidiary is a useful option and relevant alternative instead of a new entity:

• The subsidiary can help overcome bureaucracies. If you want to maintain the same management structure, a subsidiary can help ease paying out contractors, affiliates, or partners without dealing with some of the financial roadblocks and red tape that may exist in countries outside of the United States.
• On the other hand, subsidiaries are flexible enough to offer larger multinational companies the ability to expand into a country with different legal structures that may require a unique management structure due to the nature of the entity or type of business.
• Similarly, larger multinational companies who have a diverse portfolio of products or services can find value in creating a subsidiary to maintain financial dependence on the parent company while creating a separate structure that maps to the specific needs of the unique product or service.
• Lastly, organizations can diversify a corporate identity by forming subsidiaries that are housed under a larger parent company while offering the flexibility to create a unique brand that may be different or separate from the brand and voice of the parent company.