The rights, obligations and responsibilities of the company parent to subsidiary company

What is a subsidiary? What rights, obligations and responsibilities does the parent company have towards its subsidiaries?

1. What is a subsidiary?

Pursuant to Article 195 of the Law on Enterprises 2020, regulations on parent companies and subsidiaries are as follows:

Parent companies and subsidiaries

1. A company is considered a parent company of another company if it falls into one of the following cases:

a) Owns more than 50% of the charter capital or total common shares of that company;

b) Has the right to directly or indirectly decide to appoint a majority or all members of the Board of Directors, Director or General Director of the company that;

c) Has the right to decide on amendments and supplements to the Charter of that company.

2. Subsidiaries are not allowed to invest in buying shares or contributing capital to the parent company. Subsidiaries of the same parent company are not allowed to simultaneously contribute capital or buy shares to cross-own each other.

3. Subsidiaries that have the same parent company as an enterprise with at least 65% state capital ownership are not allowed to jointly contribute capital, buy shares of another enterprise or to establish a new enterprise according to the provisions of this Law.

4. The Government regulates in detail Clauses 2 and 3 of this Article.

According to the above regulations, it can be understood that a subsidiary is a company that owns part or all of the charter capital held by a larger enterprise (parent company) and is also controlled by this enterprise’s business strategy.

Subsidiaries will not be allowed to invest in buying shares or contributing capital to the company. parent;

Subsidiaries in the same parent company are not allowed to contribute capital or buy shares for the purpose of cross-ownership;

Subsidiaries that have the same parent company (the condition is that the parent company must own at least 65% of the state capital) are not allowed to simultaneously contribute capital or buy shares of another enterprise or arbitrarily establish a company. new.

2. What rights, obligations and responsibilities does the parent company have towards its subsidiaries?

According to Article 196 of the Law on Enterprises 2020, the parent company has the following rights, obligations and responsibilities towards its subsidiaries:

(1) Depending on the legal type of the subsidiary, the parent company exercises its rights and obligations as a member, owner or shareholder in the relationship with the subsidiary according to the corresponding provisions of this Law and regulations Other provisions of relevant law.

(2) Contracts, transactions and other relationships between the parent company and its subsidiaries must be established and implemented independently and equally according to the conditions applicable to independent legal entities.

(3) In case the parent company intervenes beyond the authority of the owner, member or shareholder and forces the subsidiary to carry out business activities contrary to the regulations normal business practices.

Or carry out unprofitable activities without reasonable compensation in the relevant fiscal year, causing damage to the subsidiary, the parent company must be responsible for that damage.

(4) The parent company manager is responsible for intervening in forcing the subsidiary to carry out business activities as prescribed in Clause 3, Article 196 of the Enterprise Law. 2020 must be jointly responsible with the parent company for that damage.

(5) In case the parent company does not compensate the subsidiary according to the provisions of Clause 3, Article 196 of the Law on Enterprises 2020, the creditor or member or shareholder who owns at least 01% of the charter capital of the subsidiary has the right to, on its own behalf or on behalf of the subsidiary, request the parent company to compensate for the damage. Subsidiary company.

(6) In case a business activity as prescribed in Clause 3 of this Article carried out by a subsidiary brings benefits to another subsidiary of the same parent company, the benefited subsidiary must jointly work with the parent company to refund the benefits to the damaged subsidiary.