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What Is a Subsidiary Company and How Is It Different From Other Ownership Type in a Company?

What Is a Subsidiary Company and How Is It Different From Other Ownership Type in a Company?

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What is a subsidiary company how is it different from other ownership type in a company.

There are multiple options when it comes to company ownership in Singapore. This time, we are going to put the spotlight on a subsidiary company—what does it really mean, how is it different from other business structures, and its types of shareholding.

One of the many distinct features of a subsidiary is its shareholding. Shareholders are considered as the owners of subsidiaries and there are different instances on who can be the shareholders. Continue browsing for a more extensive discourse about this topic.

What Does a Subsidiary Company Mean?

A subsidiary company refers to a limited liability company that is incorporated locally. It also has a corporate entity, which can either be local or foreign, holding the majority of its stocks. In addition, it is considered as a separate legal entity. The business activities being carried out by a subsidiary can either be the same or different from that of its parent company.

Most of the foreign companies aiming to establish a business presence in Singapore choose a subsidiary as an option. As a result, they can hold 100% shares of their Singapore subsidiary companies and enjoy all corresponding tax benefits.

Being qualified as a small company, a subsidiary is exempted from the annual audit of its accounts.

Who Can Be the Shareholders of a Subsidiary Company?

Subsidiary Company Explanation - Another Company

Another Company

Normally, in case of subsidiary the shareholding is generally held by another company, whether in Singapore or in a foreign country. The company taking shareholder, is called as a parent entity. For example, you have a company in Australia and you decide to start a company in Singapore, where more than 50% of its shareholding will be held by your Australian company. In this case, your prospect company in Singapore will be referred to as a subsidiary.


Subsidiary Company Explanation - Individual

Individuals

A subsidiary company can also have shareholding by individuals, however this is a rare scenario. You or your relatives, friends, or business partners can hold 100% shareholding in it. If the shareholding in a company is owned primarily by individuals, then it will merely be referred to as a company or an independent LLC, rather than a subsidiary.

In some circumstances, majority shareholding in a Singapore company may be hold by a parent entity with minority shareholding by key employees in personal name.


Subsidiary Company Explanation - Affiliate company

Affiliate Company

If a parent company owns only less than 50% shareholding, then its Singapore company will be referred to as an affiliate company.

How Do the Reporting Requirements Differ Among the Three Types of Shareholding?

A subsidiary company normally means a subsidiary of a parent company or parent companies holding shares in it. Notably, there are no differences in the legal structures of the abovementioned types of shareholding and they remain as private limited companies. Nevertheless, their reporting requirements differ among each other.

Subsidiary Company Explanation - Reporting requirement
  • When a company is owned by individuals and it is merely a company or an independent LLC, it will not be obliged to file additional reporting requirements. It only needs to prepare company results and file them to the country where the company was incorporated.
  • In the case of a subsidiary company, its parent company will be obliged to file its consolidated results and that of its subsidiary to the country where it was registered. For example, you are running a parent company in Australia and a subsidiary company in Singapore. In Singapore, you will have to report the results of your subsidiary company only. In Australia, you will have to report the results of your subsidiary and parent company, consolidated based on Australian accounting standards.
  • The rule on the subsidiary company also applies to affiliate companies, in which a parent company needs to file consolidated results. Nonetheless, the consolidation methods between a subsidiary and an affiliate differ from each other.

In a Nutshell

To sum it up, a company is referred to as a subsidiary when more than 50% of its shareholding is held by another company—which is its parent company.

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