What is a subsidiary company?

What is a subsidiary company?

For many business owners, coming up with a new idea means rearranging your company’s operations. While some projects will fit within your existing company, others need an entirely new one called a subsidiary. 

A subsidiary company is a company whose controlling interest, i.e, the majority of shareholders, is owned by another business. A subsidiary company is often referred to as a daughter company, while the business that owns it is known as a parent or umbrella company.

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The advantages of having a subsidiary company

A subsidiary is a great way of engaging in new business opportunities. But there are many more benefits of creating a subsidiary from your current company. They include:

  • Limited liability – one of the main reasons that UK entrepreneurs register a subsidiary company is to limit their liability. In other words, the parent company will not be liable for certain costs and fees that the subsidiary incurs. 
  • Division of labour – by starting a subsidiary company, you’re defining a legal structure for the rest of your business. Subsidiaries are also useful if you’re branching into other countries with different laws to those in the UK. That way, each subsidiary can operate separately, while still being linked to your parent company.
  • Brand building – many entrepreneurs choose subsidiaries to create separate brands, each with its own identity. This helps your products and services maintain their uniqueness in the eyes of your customers. If your subsidiary venture fails, it’s easy for your parent company to disassociate itself from that project.
  • Tax benefits – for parent companies with multiple subsidiaries, the income liability from gains made by one subsidiary can often be offset by losses in another.
  • Efficiency – creating subsidiaries enables the parent company to achieve greater operational efficiency by splitting a large company into smaller, more easily manageable entities.

How to set up a subsidiary company

You can create your subsidiary within hours at Companies House, the same place you registered your limited (parent) company.

A UK subsidiary needs: 

  • At least one named director. 
  • A registered office address. 
  • A residential address for the director.*
  • A service address for the director.** 
  • A named individual and company as a shareholder in the subsidiary, i.e. your parent company.

*The residential address will not be accessible to the general public. **The service address is the contact address where the registered individual will receive correspondence from the government, Companies House, HMRC, and other official bodies regarding their role in the company.

You’ll also need to provide Companies House with several documents, including: 

  • An Articles of Association describing the company’s structure and the relation between the company and its shareholders.
  • A statutory audit assessing the company’s financial accounts. An independent auditor will verify if the financial statements issued by your company are ‘true and fair’, and meet all legal requirements.
  • Statutory accounts breaking down the profit and loss report and a balance sheet of the previous year.

The subsidiary will also have to register for corporation tax, VAT, and UK payroll tax.

Subsidiary company examples

What is a subsidiary company?

Many of your favourite providers and brands are subsidiary companies and you probably don’t know it. That’s ok, most people don’t either. Some of the most famous subsidiary companies in the world include:

  • Instagram and WhatsApp are subsidiaries of Meta (formerly Facebook).
  • Quaker Foods and Lipton Teas (PepsiCo).
  • Pedigree and Skittles (Mars, Inc).
  • Nickelodeon and Comedy Central (Viacom).
  • Pampers and Head & Shoulders (Procter & Gamble). 
  • Monopoly and Scrabble (Hasbro).

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